There’s a lot to wrap your head around if you’ve borrowed money for school.
You might be wondering, what’s the best way to repay my loans? How fast should I aim to pay off the debt? Is there any way to delay payments while I get my finances in order? What about forgiveness? These are common questions, and this article aims to provide some ideas and suggestions to help you ask the right questions and take action. In our experience, the sooner you do, the better you’ll feel.
With another record high of 1.7 trillion in student loan debt in 2021, the thought of taking out loans today is not an easy one for many. As a borrower, when you’re confronted with your first payment, it can feel pretty overwhelming. Here are some things to consider before payment comes due:
Once you’ve started making regular monthly payments on your loans, you might be tempted to think of ways to pay down your debt sooner. Though it’s not for everyone, this is when you might consider refinancing, through which you can alter the terms of your loan to suit your needs. Here are a few of the most common ways to change the length of your repayment term.
Faster repayment? Yes. By paying down principal at a faster rate, you reduce the overall cost of the loan and prevent additional interest charges from accruing over the life of your loan.
Faster repayment? Yes. Making payments 2x per month rather than once can reduce the amount of interest you pay.
Faster repayment? Maybe. Reducing your interest by refinancing to a shorter loan term and paying more towards your principal could result in paying off your loans faster, but your monthly payments may be higher overall. On the other hand, with a lower rate, you could refinance to the same term length (e.g. 10 yrs.) and simply pay less interest, without paying off your loans faster.
Faster repayment? No. If you lengthen your term length through refinancing, you’ll pay less per month, but for a longer period of time (possibly with a higher interest rate). Alternatively, if you refinance to reduce your term length, you could pay more per month in exchange for paying off your loans sooner and potentially saving on interest over the life of your loan.
Faster repayment? No. Forbearance or deferment offers temporary payment relief if a borrower has a qualifying reason to delay their payments, which may vary by lender. It is important to understand the type of forbearance you are requesting and how it impacts your payment schedule afterwards. Currently during the COVID-19 pandemic, borrowers with federal loans are being placed in administrative forbearance.
Faster repayment? Maybe. Income based repayment (IBR)offers payments capped at up to 10% of a borrower’s discretionary income, allowing the borrower to pay based on their current income level. Your balance will be forgiven after a certain future date (generally 10, 20, or 25 yrs). Be aware that under certain programs, there are tax implications.
Faster repayment? Maybe. Enrolling in your lender’s autopay program could come with interest-rate discounts and will help keep you on track to make regular payments and avoid default. Many lenders offer interest rate discounts for using autopay, and some may apply the discount directly to principal (instead of your monthly payment) which could actually help you pay off your loans faster if you use autopay consistently.
Faster repayment? Maybe. A few cuts in your spending here and there can go a long way towards long-term financial wellness. By putting more aside in your budget every month for student loan payments, you will have the opportunity to pay more and, as a result, pay off your loans faster. Yes, you must be willing to sacrifice a few things—not easy, but it’s worth it!
Faster repayment? Maybe. Certain grants and assistance programs can provide some relief towards student loan debt.
As mentioned, student loan refinancing can be a very useful way to change the terms of your loan, whether it’s lowering your monthly interest payments or changing the speed of repayment. Whatever your needs, refinancing offers the flexibility and potential added savings that could make a real impact on your future financial health.
If you have student loans, a strong credit profile, and a low debt-to-income ratio, refinancing with Laurel Road could save you thousands over the life of your loans.1 Get in touch today to see how we might be able to help, or check out more of our resources for all of your student loan questions.
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