The Basics of Student Loans
As many people know, you can’t put a price on a good education. Still, over 30% of college graduates continue to face the debt collector as they search for their dream jobs.
Student loans are the only type of loan that a bank can issue to any student regardless of their employment status, income, or credit score. Many federal student loans and private lenders will provide low fixed rates, flexible terms, and a temporary pause on payments until graduation.
What’s more, this “good debt” can give a high return on investment by helping the graduate earn a substantially higher income. However, there are still some things you should know about paying off student loans and how to make them work for you.
What to Consider When Repaying Your Student Loans
In 2021, student loan debt reached a record-breaking $1.61 trillion. If you feel you’ve added to this number considerably, it’s time to make a student loan repayment plan.
Sort Your Debt
Before you start making payments, make a list of all the loans you’ve taken out. Next to each loan, note:
- The interest rate
- The lender (from whom you received the loan)
- The amount of each loan
- The due date for each monthly payment
- The monthly minimum payment
Doing so will keep you from missing any payments and help you discover your loan payment options. It’s usually best to pay off loans with the highest student loan interest rates first.
Once you understand how much your loan payments are and how many lenders you owe, you can choose the right payment plan.
Short-Term Repayment Options: If you have a larger monthly budget that allows you to pay off a greater amount of debt in a short period, choose a short-term repayment plan. This plan will clear your debt faster with higher payments, but less money spent on interest over time.
Long-Term Repayment Options: If large monthly payments don’t fit in your budget, opt for long-term student loan repayment plans that allow you to pay back the money you owe over ten years.
Income-Driven Repayment Options: Your servicer decides the proper amount for you to pay based on your income and dependents. After a certain time, you can be eligible for loan forgiveness, which clears the rest of your debt. However, the forgiven balance may turn into taxable income.
Other Aspects to Consider with College Loans
Aside from preventing late payments by remaining consistent each month or allowing an automatic deduction from your checking account, here are some other aspects to consider:
- Pay off some of your debt during your grace period after graduation.
- Consolidate your federal loans, so multiple loans turn into one easy-to-manage monthly loan.
- Refinance your debt by placing your existing loan on a new loan with smaller interest rates.
- Put extra money like tax refunds, bonuses, and monetary gifts toward your payments.
How to Pay Off Your Student Loan Debt Faster
Directing most of your income and all your extra money toward your student loans can place saving up for a house or your dream car on the back burner. However, the faster you pay off student loans from the past, the quicker you can start saving for something you want in the future.
Paying According to Interest Rates
The best way to pay off loans faster is by taking another look at your list of loans and determining which loans have the highest interest rates. Prolonging these loans can double your debt in the long run.
Instead, focus on paying more than the bare minimum and placing “found money” into each student loan payment. That will diminish the total amount due and rid you of this loan as soon as possible.
Use a Shorter Payment Term
Many graduates may not have the funds for shorter payment terms straight out of college. However, it’s a good option for those who can.
While extended payment terms mean less money out of your account each month, it also means longer payment plans and more money spent on interest. In contrast, shorter payment terms mean fewer billing cycles and, therefore, less interest.
While this may not be common among smaller businesses, numerous workplaces help graduates with repayment assistance. With this benefit, employers usually provide $100 or more each month, allowing you to pay more than the bare minimum and relieve your debt faster.
Ways Students Can Lower Their Student Loan Payments Today
On the other hand, other students may want to lower monthly payments, even if that means longer payment plans. Aside from using extended, graduated, or income-sensitive payment plans, try the following:
Refinancing Your Loan
While private lenders may not give you the payment plan you desire, other providers like Greater Alliance Federal Credit Union offer flexible loans so you can pay other college loans faster with borrowed money. In turn, you’ll pay lower interest rates, lower monthly payments, and have an extended repayment time with your refinancing lender.
Like with automatic bill payments, a set amount of money transfers from your bank account and over to your loan provider with automatic student loan payments. While you may not be able to pay more or less during different billing cycles, you’ll be eligible for reduced interest rates of up to 0.50%, contributing to larger savings over time.
Banking with Greater Alliance Federal Credit Union
If you or your child has a severe student loan crisis, it’s time to find a safe place. At Greater Alliance Federal Credit Union, we offer student loans up to $120,000 for undergraduates and $160,000 for graduates.
Don’t forget to take advantage of our 0.25% interest rate reduction and other incentives for a positive banking experience. We’ll also refinance your student loan with lower interest rates so you can pay your high-interest loans faster.
To better understand your options for student loans, schedule an appointment by calling 888-554-2328 today.