Student loan repayment is an often overwhelming, confusing task.
But the more you know about your loans and the options available for these loans, the less overwhelming and confusing your student loan repayment will be.
And the faster you will be able to get out of debt.
(I testify to this in How I Paid Off $10,000 in 6 Months.)
But where to start?
With such an abundance of info out there about student loans, you can start with these 6 crucial facts as a springboard to better understand your student loan repayment.
6 Crucial Facts You Didn’t Know About Your Student Loan Repayment
1. You’re Not Stuck with the Interest Rate They Give You
Interest rate is the bane of my existence.
It varies depending on your type of loans, and of course on your loan provider.
For example, at the start of my repayment journey, the interest rate for my federal loans was somewhere around 5%, while the average interest rate for my private loans was 11%.
The latter still makes me cringe.
Luckily, there are several ways you can lower your interest rate.
For Federal Loans, you may have the option of signing up for automatic payments.
This means that every month, your provider will automatically take out your minimum payment (or more, if you change the set amount you want to pay back) without you having to lift a finger.
Signing up for automatic payments will usually reduce your interest rate by .25%. Although this doesn’t seem like a lot, it’s better than nothing.
(Not to mention with the thousands of dollars that you’re probably paying back, .25% actually turns out to be a pretty significant number.)
Besides, this option also ensures that you never miss a payment, so really it’s a win-win.
Just make sure you always have enough in your bank account to cover the automatic payments.
For both Federal and Private Loans, you can look into refinancing.
This means that you take out a new loan (usually with a credit card or a bank) with a significantly lower interest rate to cover all your student loan payments.
Then, you end up sending (much smaller) payments to said credit card or bank.
Of course, refinancing is not for everyone.
This will depend on your current interest rate, and whether or not you would be losing any benefits from your current providers.
For example, I refinanced all my private loans with a personal bank, because the bank’s interest rate was 4.49% (a heck of a lot cheaper than 11%).
This move cut my minimum monthly payments down by $200, AND the interest accruing on my loans has been decreased by more than half!
BUT: since my loans are now covered by my private bank, I no longer have access to Sallie Mae’s deferment option (which would have gone into effect with my prior loans, since I am now back in grad school).
For more info on how I lowered my interest rate for my private loans, you can check out my comprehensive student loan repayment plan.
2. Deferment and Forbearance are Two Very Different Things
With all the student loan jargon out there, it can be easy to confuse these two mysterious words.
Loosely speaking, both deferment and forbearance allow you to stop making payments on your loans for a certain period of time.
But they are SO different.
Think of when you were in undergrad.
You weren’t expected to make any payments, although your interest continued to accrue on unsubsidized federal loans and private loans.
This is deferment.
It’s pretty much the holy grail when it comes to being a broke college kid.
In addition to being in school, your loans may go into deferment for a number of reasons, including unemployment and active duty military service.
(For a more comprehensive eligibility list, check out Federal Student Aid’s site.)
But if you graduate from college with no plans to go back to school or join the military, then you have a 6-month “grace period” before you are no longer in deferment.
Aka at the end of those 6 glorious months, you have to start making payments.
Forbearance is like the adult version of deferment, or at least that’s how I think of it.
Like deferment, it allows you to stop making payments on your loans for a certain period of time, while interest continues to accrue.
You can apply for forbearance for your federal and/or private loans, although the terms of their forbearance rules may be different.
For example, with Sallie Mae, I was told that:
- I would have to pay to apply for forbearance (a fee of $50 per loan)
- it would only last for 3 monthly payments
- I was only able to apply for forbearance 4 times throughout my whole repayment period.
Which are kind of crappy conditions.
You will want to check your own service provider’s terms (as well as your federal loans’ forbearance rules, if applicable).
But personally, I try to avoid forbearance like the plague.
3. Loan Forgiveness Programs Do Exist
Loan forgiveness is exactly what it sounds like.
Depending on the program, you first do a certain service (like teaching) for a specific number of years and/or make a certain number of payments.
And after the number of years and/or payments is up, your loans vanish.
(Of course, the terms are a little more complicated than that when you take taxes into account. Accordingly, you’ll want to do your own research to determine whether or not student loan forgiveness is the best option for you.)
To see if you qualify for some federal forgiveness programs, check out these 7 Student Loan Forgiveness Programs Funded by the Government.
I use one of these programs myself, which you can read more about in my student loan repayment plan.
4. Even More Loan Forgiveness Programs Exist
There are several programs OUTSIDE of the government that will pay back your loans.
This will very much depend on your own situation, but you may qualify for loan forgiveness programs depending on your:
i.e. Aetna, Chegg, Penguin Random House
For more ideas, check out this Student Loan Hero article.
There are a lot of opportunities for teachers, doctors, nurses, and lawyers.
You can start your research with another Student Loan Hero article as your starting point, which provides all applicable links.
(Sorry to all my fellow humanities grads.)
Some random cities and states will actually pay off your loans if you move there.
Quite the incentive.
Note that these areas will likely not be the most glamorous locations, considering they are literally bribing you to move there.
But it’s certainly a viable option to pay off your debt.
For an in-depth look at cities and states that offer some sort of incentive for moving there, check out this article from Thrillist.
5. The Only Ideal Repayment Method is the One that Works For You
Some people swear by the snowball method, while others are crazy for the avalanche.
(More info on these, as well as how I successfully use a combo of the two, in my student loan repayment plan.)
Still, everyone has a different loan situation.
As such, there are just too many variables for anyone to say that this is The Right Way to do it.
For example, everyone says that you should make payments during the 6-month grace period.
And financially speaking, that’s correct.
But realistically speaking, that’s not always feasible.
After graduation, I knew that I had 4 months to save up some money before moving to France, where I would have to start making loan payments.
Instead of making any payments during the grace period, I instead saved up my money to ensure that I would be able to make the initial payments while I was abroad.
And it worked well…like, really well. (You can find my results in How I Paid Off $10,000 of Student Loans in 6 Months.)
So first and foremost, you need to be aware of your own particular situation, and craft a repayment strategy that best reflects your goals.
6. You Can Find Tons of Resources to Help With Your Repayment Journey
You’re not in this alone.
There are several online resources that can nudge you along as you make your way toward a debt-free life.
In case you haven’t noticed by my obsessive links, Student Loan Hero is my favorite.
The site has tons of different calculators to help you better understand your repayment terms, whether you’re focusing on deferment, refinancing, or just paying back your loans in general.
(I often use the Monthly Payment Calculator to make sure I’m on track with making more than the minimum payment, which I talk more about in A 7 Step Guide to Creating a Monthly Budget.)
The website also has tons of helpful articles if you’re overwhelmed by the sheer information that comes along with student loans.
Of course, there are tons more sites and apps that will help you better understand your loans and set you on the path to paying them back faster.
(If you want more ideas, head over to 6 Best Debt Payoff Apps, an article from–you guessed it–Student Loan Hero.)
Your student loan repayment doesn’t have to be painful. By understanding these 6 crucial facts and acting accordingly, you’ll better understand your loans, and pay them off quicker!
- You’re not stuck with the interest rate they give you.
- Deferment and forbearance are two very different things.
- Loan forgiveness programs do exist.
- Even more loan forgiveness programs exist.
- The only ideal student loan repayment method is the one that works for you.
- You can find tons of resources to help with your repayment journey.
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