Going to college is an expensive investment, a lifelong one in fact. Most families cannot afford the luxury of giving their children the advantage of paying for a college education, without going into debt. With that being said, what is a borrower to do once the student loan payment is due?
Your first student loan payment is due either six months after graduating from school; you are no longer enrolled, or are not attending college on a part time basis. While this may sound like an ideal situation, in today’s economy students are not finding jobs as quickly as expected, often having to take lower paying jobs just to make ends meet. These types of situations make it harder to pay back not only student loans, but other financial obligations as well.
What’s a student or working professional to do? Below are 7 ideas on how to pay off your student loans quicker, which can help ease the financial burden that is impacting millions of Americans today:
#1. You are not alone. Knowing this won’t actually help you pay off your student loans. However, once you realize that you are not the only person going through this, you may feel a bit better.
#2. Call your student loan servicer to discuss what options are available based on your financial situation. If you are having a hard time with finding a job, let them know. If you have a job and you’ve had to take a reduction in pay, let them know that as well. In most cases they will extend your deferment period another 6 months if you are not working and will help to identify a lower repayment option based on your current financial situation. Defaulting on your loan is not an option. This will come back and haunt you at the worst possible time; especially in cases where you are looking to purchase your first home or are seeking employment where your credit score is a deciding factor.
#3. The good thing about student loans… Well, if there is a good thing is that there are multiple repayment options available for borrowers to choose from. Two popular repayment options are: Income Driven Repayment (IDR) and the Income Sensitive Repayment Schedule.
Under the Income Driven Repayment (IDR) plan, your student loan payment is based on your income and family size. The goal is to make the monthly payments affordable to borrowers while also being sensitive to the financial obligations and responsibilities that exist for individuals as well. Under an IDR plan, borrowers are required to re-certify annually to ensure the monthly payment amount is based on the latest financials of the borrower.
For example, a recent graduate who has started making payments on their student loans may have a monthly payment amount of $250. A few years later, the same borrower is now married with 1 child. Upon completing the annual recertification process, the borrower’s income could have stayed the same, however their family size increased. As a result, their monthly payment is reduced to $125 instead as an example. The amount that is paid by the borrower is based on 10% of their discretionary income; which is subject to change from year to year.
The income sensitive repayment (ISR) plan however, is available to low-income borrowers who have a Federal Family Education Loan (FFEL). Under this plan, which is not based on discretionary income but rather the borrower’s “annual income” also undergoes the recertification process like the IDR plan. The ISR is beneficial for borrowers with lower incomes who have also taken out Federal loans for their higher education. These two options (the IDR and ISR) are something to consider when applying for student loans or when reapplying.
#4. Contact your servicer either over the phone or online to ask if you could change the payment due date. Maybe the due date falls on the same day of the month as your rent and other expenses. Could a week later make it easier for you to make the payment each month? It’s certainly an option to consider. While each servicer’s policies are different, it’s worth asking if this would make a difference between you being on time versus late with making your payments
.#5. Do you have more than one student loan? Chances are if you completed more than one semester in school, the answer is yes. Could you consolidate these into one big loan? If so, you may actually be lowering your monthly payment in the process. This also gives you the flexibility to explore the various repayment options that are available to Federal borrowers.
#6. Should you ever apply your student loan payments to a credit card? It depends. It’s certainly an option, one that many borrowers have taken advantage of. Doing so can help you build your credit, however you should also be careful to make sure you’re not paying more in the long run in interest. In most cases, unless you’re talking about a 0% interest balance transfer card, the interest you will pay by transferring your student loans to a credit card will be higher than if you paid your loan directly through your servicer.
Besides, who loves a surprise of the financial kind? The type of surprise that has you paying for an unexpected expense; however your credit card is tied up with your student loan balance. That’s a tough spot to be in, so you want to explore all of your options before considering putting your loan on your credit card as it could prevent you from having access to capital for an unexpected emergency.
#7. Ask your family for help. This is why we put this one last. Usually asking family or friends for money is one of the LAST things we like to do. It probably makes the top 10 list of things we hate to do. We get it, maybe you’ve borrowed money in the past and haven’t come around to repaying your debt.
Heck, maybe you’re used to being the one who lends money out and now you’re on the receiving end of things. Sometimes in life, we have to swallow our pride and think about our long term goals. If your family has the resources, they love you and they want to see you succeed, they will also help you out. By establishing a repayment plan on how you will repay them as you would any regular loan, they might be open to helping you out.
The cost of higher education is high and continues to increase year after year. There is no getting around it. Most students will have to apply for one student loan, if not several to make it through college. Others will have to take out loans and also supplement with a PT job, work study or some other means of employment just to make ends meet. Having a plan in place prior to when your loans come due is the best approach to help with managing your student loans and personal finances.
Related: What You Ought to Know About Consolidating Student Loans
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