If you have student loan debt, you probably also have a lot of questions. Here are some common concerns, as well as answers and additional resources to help you navigate your student loans.
What types of loans do I have?
You need to know if you have federal or private loans (or both), and what type of each. In short:
- Federal student loan: issued and guaranteed by the U.S. Department of Education, fixed interest rates (do not change) with flexible repayment plans and loan forgiveness options
- Private student loan: issued by banks, credit unions, or other lenders, fixed or variable interest rates (may change), with limited repayment flexibility and may require a cosigner and credit check
How much do I owe? How much do I need to pay each month?
You’ll need to know the total outstanding debt, the minimum monthly bill, and the due date.
What is my repayment plan?
The U.S. Department of Education has a detailed repayment plan guide, but here is an overview of options available for qualified federal loans:
- Standard: fixed payments for payoff within ten years
- Graduated: graduated payments (lower at first and increases over time) for payoff within ten years
- Extended: fixed or graduated repayments with payoff within 25 years
- Pay As You Earn (PAYE): bills are 10% of discretionary income (calculated each year) with the outstanding balance forgiven after 20-25 years
- Income-Based Repayment: payments are 10-15% of discretionary income (calculated yearly) with the remaining balance forgiven after 20 years (need to pay income tax on the amount forgiven)
What is my plan to pay off the loans?
Choose a debt repayment strategy (see our reducing credit card debt blog to learn more). You can also try some of these ideas for making payments and reducing your loan expense overtime.
- Set up bi-weekly payments of half your monthly bill to pay an extra monthly charge over a year.
- Automate your monthly payments. Many loan servicers offer a small interest discount if you do so.
- If possible, pay more than the minimum to reduce how long you’re repaying and save money.
What are my options if I’m unable to do so?
Deferment or forbearance allows eligible borrowers to temporarily pause or reduce their monthly payments on their qualified federal student loans.
- Forbearance: postpone payments for about one year, interest accrues on loans
- Deferment: pause payments for about six months, interest accrues on select loans
Refinancing is a service offered by private lenders to refinance federal or private loans for a lower interest rate. BE CAREFUL: Refinancing federal loans disqualifies you for income-based plans or forgiveness.
Consolidation allows borrowers to combine multiple qualified loans into one loan with a fixed interest rate (based on the average). This method can streamline your repayment by reducing the number of payments.
If you meet specific eligibility criteria, you may qualify for loan forgiveness.
Money Management E-Newsletter: August 2019