First comes the countdown to graduation, then comes another suspenseful period: the six-month grace period of loan deferment. For many students who are inching closer towards receiving their degrees and have the common misfortune of student debt, those two milestones stand between them and the responsibility of finally paying back that debt. It won't be fun, to say the least, but there are options for paying off student loans that could make life just a little bit easier.
Make no mistake about it, either, many people around the country could use those options. The national student loan debt — the combined amount of money that borrowers owe in student loans — has been over $1 trillion for years, according to the Federal Reserve. Plus, numbers show that a large chunk of borrowers are late in making payments on their loans. Around 18 percent of people who borrowed student loans from the U.S. Department of Education were at least 31 days late on their payments in June 2017, per Bloomberg.
Simply put, a lot of Americans have student loan debt, and a good number of people seem to have real trouble paying those debts back. That's where the multiple options borrowers have come in handy.
Some of these options involve adjusting the amounts of money you pay, other options require enrolling in certain programs. All of these options, though, are geared towards helping you pay less money to a lender.
Here they are:
You Can Refinance
One of the more straightforward options you have is refinancing your loans. Refinancing involves going to new lender and making an agreement that would see that new lender pay your debt to the original lender on your behalf. You would then owe the new lender the amount paid — let's say, $30,000 — but hopefully at a lower interest rate. This option could be especially useful if your existing school loans have interest rates that you deem too high, but refinancing involves plenty of variables.
There are plenty of resources out there that will help you scout new lenders, though, and you can get a bit of a preview of whether refinancing would be a good option for your.
Nerd Wallet's refinancing calculator is one example. It allows you to punch in information like your credit score, annual income, and the amount in student debt you owe, then shows which lenders in your state offer student loan refinancing and the range of interest rates they offer.
You Can Enroll In Public Service Loan Forgiveness
Public Service Loan Forgiveness is a government-administered program that relates to borrowers of federal Direct Loans. When enrolled in the program, those borrowers become eligible to have the balance of their debt forgiven after a certain amount of time of working in public service.
Here's how the program works, per the U.S. Department of Education. If such a borrower makes 120 monthly payments on a federal Direct Loan — that's 10 years worth of payments — while working for a qualifying employer, then the remain balance on the loan is forgiven. The Education Department defines a qualifying employer as a government organization, like a public school district or a non-profit organization. To enroll in the program, borrowers must submit an employment certification form.
If you plan to have a career in, let's say, teaching, this may be the program for you.
You Can Make Grace Period Payments
Many loan agreements allow a six-month grace period between the time that a borrower exits school and the time at which a lender requires monthly payments to be made. While your instincts might steer you towards enjoying that payment-free time while you can — because it definitely might not come back any time soon — you could use the grace period to get a head start on paying back any loan.
Doing so could help knock out a significant amount of interest on the loan, which helps ensure you don't pay too far above the principle (which is the original amount borrowed).
This option is especially worth considering if you are fortunate enough to have a steady income right after graduation. You can use a student loan prepayment calculator to experiment and preview how much an early payment could save you in the long run.
You Can Increase Your Monthly Payments
Another proactive move you can make is adjusting your monthly payments when you do get past a grace period. The monthly payment that a lender advises you to make is just that: advice. You can't make a payment under the amount, but you can certainly take initiative and pay over the amount, should your financial status allow for that. Doing so could put you on track to pay less interest and fulfill the terms of your loan agreement faster.
This loan calculator will help you determine how much money you save, and how much faster you can pay off a loan, by increasing payments by any given amount.
You Can Apply For Income-Based Repayments
If you're having trouble paying back your federal student loans and think they might be too high for someone with your yearly income, you could apply for Income-Driven Repayment, which is another government sponsored program. There are four different Income-Driven Repayment plans that are meant to allow borrowers to pay back their federal loans with lower monthly payments that are proportionate to their incomes.
An income-driven plan could help you cap your repayments at only 10 percent of your income, while extending the term of your agreement. In addition, if you still have a balance at the end of the extended term (which could last 20 to 25 years) the loan balance could be forgiven.
However, the plan does have drawbacks. A longer term and lower monthly payment means more time for interest to accrue, which means more money paid in the long run on top of the principle. As is the case with all the option mentioned here, you should weigh income-based repayment against all other options available to you.
But rest assured, there are options.
