Tips for Paying off Student Loans

Collectively, 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

rate.

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.