Make sure to do these 5 things for your student loans before the year ends.
Here’s what you need to know.
1. Consider an income-driven repayment
If you are struggling to pay off federal student loans, consider an income-driven repayment plan. There are four types: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR). Income-driven repayment plans can lower your monthly federal student loan payment to 10-20% of your discretionary income. While income-driven repayment plans can help provide short-term financial relief, interest will accrue on your federal loans. Therefore, assess whether income-driven repayment plans are the right long-term solution for you. You also may be eligible for student loan forgiveness on your remaining federal student loan balance after 20 to 25 years. However, you are liable for income taxes on the amount of student loan forgiveness.
2. Consider student loan forgiveness
Public Service Loan Forgiveness is the federal government’s primary program that will forgive all your federal student loans. You have to meet all the requirements, which include, among others, making 120 monthly payments while you work full-time for a qualified public service or non-profit employer. You can get started by completing an Employer Certification Form with the U.S. Department of Education. Don’t fall for companies that promise to forgive all your student loans – they don’t exist.
3. Consider Private Student Loans
The best way to borrow for college or graduate school is to borrow responsibly. Pay for higher education with funds in this order: grants and scholarships first, then federal student loans and then private student loans. Importantly, scholarships and grants don’t have to be paid back, and federal student loans come with borrower protections that private student loan may not have. However, private student loans are a good option too if you find the right lender and interest rate. A qualified co-signer can help you get a lower interest rate. Private student loan interest rates often can be lower than interest rates for federal student loans, depending on you or co-signer’s credit score and income. A lower interest rate can help you pay off student loans faster.
4. Make A Lump-Sum Payment
You can pay off student loans faster if you make extra lump-sum payments. You don’t only have to pay the minimum payment. If you have extra income of any amount, make an extra student loan payment. Extra sources of income could include a bonus, a tax refund or a holiday gift. Inform your student loan servicer in writing to apply the lump-sum payment to your principal balance only (not your next month’s payment) so you can reduce the amount of interest you owe.
5. Refinance Your Student Loans
You can lower your interest rate when you refinance student loans with a private lender. Lower interest rates mean you can lower your monthly payment and save thousands of dollars in interest. The best time to refinance student loans is whenever you can get a lower interest rate than your current interest rate. There are no fees to apply and no prepayment penalties so you can pay off student loans early. You can also keep refinancing as often as you like, so long as you can get a lower interest rate. Student loan refinance rates are now ridiculously cheap and start at 1.9%.
This student loan refinancing calculator shows you how much you can save.