How to Manage Student Loan Debt

Student loan debt can feel overwhelming, but it doesn’t have to be. From budgeting to repayment plans to loan forgiveness programs, there are many options for managing your student loan debt.

Just as there are lots of ways to get money for school, there are lots of ways to pay it back. But student loan debt is soaring. According to the Federal Reserve Bank of St. Louis, Americans owed nearly $675 billion in student loans in 2008. That amount has more than doubled over the last 10 years to $1.57 trillion in 2018.

For many recent graduates, the prospect of repaying student loans can seem daunting. However, careful budgeting and examining all of the repayment options can help you manage your student loan debt without feeling overwhelmed.

Find the Right Repayment Plan

Most student loans offer a grace period of six to nine months after you stop attending school before loan repayment kicks in. Take that time to plan. Get a sense of how many loans you have and how much you owe. Then, create a budget to determine how much you can dedicate to your repayment plan.

Some lenders may automatically enroll you in a repayment plan. If the standard repayment option doesn’t work for you, you may have other options available to you. For example, the federal government offers an extended plan that lets you pay off your student loan over 25 years. Income-based repayment plans are another option offered by many lenders, which determines an affordable monthly payment based on your income and family size. Private lenders may also offer different repayment programs, like interest-only repayment plans. Check with your lender to understand the repayment options that are available to you.

Consolidating and Refinancing Student Loan Debt

If you’re hoping to lower your monthly payments, consolidation of separate federal loans can potentially extend your repayment window and give you lower payments. While private loans aren’t eligible for consolidation, they can be refinanced through private lenders, as can Direct PLUS loans.

Consolidating your student loan debt into one fixed-rate loan may help you avoid variable-rate loans. There are some downsides, however. You may increase the total amount of interest paid on the loan, and sacrifice some advantages of your initial loan arrangement, like interest rate discounts, principal rebates, or loan cancellation benefits. You may also lose the right to participate in income-based repayment plans and student loan consolidation programs.

Take a Break: Deferment or Forbearance

Under certain circumstances, you can pause or temporarily lower your student loan payments with a deferment or forbearance. Be aware that there is a difference between each option. During a deferment period, you’re typically not responsible for paying interest that accrues on certain subsidized loan types, though interest will still accrue on unsubsidized loans. During a forbearance period, interest is still accruing, and you’ll have to pay it later, usually in one lump sum when the next payment is due.

Check with your lender for your eligibility for deferment or forbearance. Generally, if you’re struggling to keep up with payments due to a short-term setback like the loss of a job, one of these options may be right for you.

Student Loan Forgiveness, Cancellation, and Discharge

Loan forgiveness or cancellation usually means your loans are forgiven if you meet certain standards. The Public Service Loan Forgiveness program offers loan forgiveness for those who work full-time for a government agency or a selected type of nonprofit and you’ve made 120 payments under a qualifying repayment plan. Income Based Repayment plans, like those mentioned above, also provide federal student loan forgiveness after 20 to 25 years of continuous repayment on an eligible income based repayment plan. Be aware that this could impact your tax liabilities. Loan discharge is occasionally offered under other conditions, such as a major disability or your school closing. Private loans tend to be more difficult to cancel or discharge because lenders aren’t required by law to offer this kind of relief.

Maintaining Your Credit Profile While Paying off Student Debt

You need good credit for future borrowing, so it’s critical to make your payments on time and avoid defaulting on your loans. In fact, repaying your student debt responsibly can actually help you to build a strong credit history.

Your credit score is based on a combination of factors, including your payment history, types of debt, the amount you owe, your debt-to-income ratio, and any new loan applications. It’s a good idea to obtain free annual credit reports from Experian, TransUnion, and Equifax and check for inaccuracies. You might improve your debt-to-income ratio by establishing a graduated repayment option, with smaller repayments coming earlier.

Make a plan and consider all your options before your student loan payments kick in. With a little budgeting and some research, you can slowly but surely chip away at student loan debt without being overwhelmed.

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