In an ever-changing student loan environment, many borrowers are wondering what’s the best way to pay off student loans? Although there is no one-size-fits-all answer – every borrower has unique financial circumstances – there are many effective strategies you can leverage.
Many federal student loan borrowers are still adjusting to the difficult news: The US Supreme Court rejected President Biden’s proposed debt cancellation plan, and the pandemic-related pause on federal student loan payments and interest will end this Fall. That means interest on student loans will resume on September 1, 2023, and monthly payments will be due again in October.
For millions of borrowers, this is a shock to their personal finances. Additionally, several major changes to the federal government’s Income-driven Repayment (IDR) program were announced that will affect currently enrolled borrowers and future applicants alike. Let’s look at the options for managing student loan debt – whether from federal or private student loans – in the wake of these shifts in the student loan landscape.
As student loan borrowers weigh their repayment strategies, they should consider all possible options: Making extra payments while still in school, making extra payments toward their principal balance, enrolling in an IDR plan, setting up AutoPay, and refinancing.
If feasible, making payments while still in school and in an interest-free period could help cut down the principal balance of your loan(s), which could result in less interest paid over the lifetime of the loan.
As a student with a limited budget, it can be difficult to make payments while you’re in school, but with diligent accounting, you may be able to make consistent payments – however small – that could help in the long run. For help creating a simple budget, try our 50-30-20 budget calculator below.
Our budget calculator will divide your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings.
Essential required expenses – including housing, utilities, and minimum debt payments.
May include expenses you don’t always need, such as restaurants, travel, or entertainment.
Should include emergency funds, retirement, and extra debt payments.
Similar to making payments while still in school, if you’re able to make extra payments per month towards your loans’ principal balance – this may be more feasible once you’re out school and working – you could help cut down on interest and reduce the length of loan repayment. Learn more about the benefits of paying extra on student loans here.
If you have federal student loans, you may qualify for an IDR plan, including the new Saving on A Valuable Education (SAVE) plan. An IDR plan can help reduce your monthly payment amount – even to as low as $0 – as well as provide forgivness on your remaining balance after 10, 20, or 25 years of repayment, depending on your plan type and how much debt you have.
Moreover, if you work for a government agency or a qualifying nonprofit organization, you could qualify for Public Service Loan Forgiveness (PSLF).1
Learn more about these federal programs:
Enrolling in AutoPay can not only mitigate some of the stress that comes with having to manually make your monthly student loan payments – especially if you have multiple loans to remember to pay – but it could also save you money. Many servicers offer an interest rate reduction for setting up automatic payments, so it may be worth enrolling for potential savings and to help avoid late fees.
Borrowers with high-interest or variable interest rate private loans could benefit from refinancing or consolidating when rates go down. You can refinance federal and private student loans – even if you’ve consolidated or refinanced before – but each lender has different rates and criteria for eligibility. However, be aware that if you refinance federal student loans, you’ll lose access to the federal repayment and loan forgiveness programs. Learn more at studentaid.gov, or check out the resources below:
When it comes to managing student loan debt, you’ve got many strategies to explore, and you might consider using a combination strategies to help pay down your debt faster. While some – such as making extra payments on your principal balance – may not be financially feasible for you now, you can keep them in mind for a later date when your financial circumstances change.
While it’s time-consuming to sort through your repayment options to find the best fit for your needs it’s worth dedicating the time to thoroughly compare the pros and cons of different student loan debt management strategies. Our dedicated team of student loan specialists can help you better understand all your options and help you make a plan. Schedule a free 30-minute consultation here and learn more about repayment options, qualifying for forgiveness, refinancing, and student loan debt management in our curated content collections:
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To qualify for PSLF, you must be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service); work full-time for that agency or organization; have Direct Loans (or consolidate other federal student loans into a Direct Loan); repay your loans under an income-driven repayment plan; and make 120 qualifying payments. For full program requirements visit: Federal Student Aid.