Loan Repayment Tips for Recent (and not-so-recent) Graduates

25 May


Whether you’re a recent graduate whose loans are just entering repayment or you have been making payments for several years, there is a very real chance that educational loan payments may be causing you a financial hardship. For recent graduates, there is a lot of info covered in federal exit counseling and it would be easy to have missed some of it.  While there isn’t much that can be done about the amount you owe since you’ve already borrowed it, you can still choose from several different options for repayment.  The Institute for College Access and Success created a Top 10 Tips for recent graduates, a handy reference for borrowers.

If you are able to pay more than the minimum on your loans each month you can reduce your payments and total interest that you will pay. If you are able to do this, you might wonder what the best method is. The two best ways to pay down your loans are the snowball and avalanche methods where you pay either the lowest balance or the highest interest rate, respectively. In addition, if you pair this with an income-based repayment plan but still pay the same total amount on your loans you can allocate more toward your loan of choice and pay it down even quicker while having flexibility of a lower minimum payment if life throws you a curve ball.

Unless you chose otherwise, you’re probably enrolled in the Standard Repayment Plan which spreads your payments evenly over 10 years. This is both the default plan as well as the most aggressive repayment option available. However, there are several other options a borrower can choose which can limit the repayment per month to 10% of  discretionary income and reduce payments to as little as zero dollars per month (depending on income). For more information, check out Acacia Squire’s piece in NPR about her experiences and what options may be available to you.

If you have thought about refinancing your student loans, CNBC recommends not to rush into it. While you may be able to get a better interest rate you lose out on any income-based repayment options in the event that your financial situation has any changes. However if your situation is stable and an income-based plan is not in your future, a lower interest rate could save you thousands in interest throughout the life of your loan.


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