Tips for Paying off Student LoansCollectively, my husband and I have twelve years of college, which sounds
impressive. You know what’s not impressive? The twelve years of debt that
we accumulated while we were pursuing our twelve years of higher education.
Every penny we borrowed we are now paying back, with lots and lots of
interest. If you look at the numbers, it's overwhelming.
There are several important things to remember when paying back the money you’ve borrowed for your education:
1. Know Your Loans: It's important to keep track of the lender, balance,
and repayment status for each of your student loans. If you’re not sure you
have all the information about your loans, you can start by visit
www.nslds.ed.gov. Once you log in you can find out your total loan amounts,
servicer(s) contact information, and the repayment status of all your
federal loans. If some of your loans are not listed, they are probably
private (non-federal) loans.
2. Sign up for automatic payments. Some borrowers will lower your interest
rate if you sign up for automatic withdrawals and pay on time for a certain
number of months. Lowering your interest rate can be key because over the
course of the loan, I promise it will make a difference. If you’re timely
with your payments and you have automatic payments, you have two chances to
lower your interest rate.
3. Always, always, always make your payments. Missing payments can get you
into financial trouble. It can affect your credit score and it’s always
hard to get caught up when you get behind.
4. Aim to repay your loans in 10 years. Here’s an example: Let’s say you
owe $24,000 in federal Stafford Loans at 6.8 percent interest. If you pay
over 10 years, you will shell out $9,143 in interest. If you take 20 years
to repay your loan, your interest paid increases to $19,969. At 30 years,
your interest jumps to $32,328! This is a huge difference!
5. If you can’t pay off your loans in 10 years, pay an extra $20-30 per
month (or whatever you can afford) toward the principal. When you make a
loan payment, it covers any late fees first, then interest, and finally the
principal. Any extra you pay will lower your principal, which will reduce
the amount of interest you have to pay. The extra that you pay should be
completely applied to the principal of the loan. You can see how much of
each payment is split between interest and principal on your servicer’s
website. If you’re making an additional payment in one month, include a
written request to your lender to make sure that the extra amount is
applied to your principal; otherwise they will likely split it between
interest and principal.
6. Make sure you understand your loans and what options your lender offers.
It will be different for private and federal loans. Different lenders may
offer lower monthly payments, for example, the federal Income-Based
Repayment program, which caps the amount you must pay every month at 15
percent of your discretionary income.
7. Pay off the loans with the highest interest rates first. If you have
private loans in addition to federal loans, start with your private loans,
since they almost always have higher interest rates and lack the flexible
repayment options and other protections of federal loans.
8. Consider Consolidation: A consolidation loan combines multiple loans
into one for a single monthly payment and one fixed interest rate. You can
find a calculator and other useful information at
www.loanconsolidation.ed.gov. Just remember that even though consolidating
your loans may simplify repayment, it could also lead to a higher interest
9. Look into loan forgiveness: There are various programs that will forgive
all or some of your federal student loans if you work in certain fields.
Options are available for teachers in low-income communities, nurses,
AmeriCorps and Peace Corps volunteers, government, nonprofit, and other
public service jobs, and other professions. For a list of programs that
offer loan forgiveness, visit http://www.finaid.org/loans/forgiveness.phtml.
10. If all else fails, and you can’t make the payments, don’t panic.
Simply contact your lender to see what can be done about it. There are
hardship forbearances, unemployment forbearances, interest only payments –
all options you may want to consider if you’re really having trouble making
ends meet. But beware: interest accrues on subsidized, unsubsidized, and
private loans during forbearances. Working something out with the lender is
always better than defaulting on a loan, which will negatively affect your
credit when it comes time to do things like buy a house, get a car
loan, or get a lower rate on a credit card.