What You Need to Know About Paying Back Your Student Loan
A student loan can open up amazing possibilities for your future after earning your degree. Once you’ve graduated college and have a stable income, it’s a good financial move to pay back your student loan as fast as possible. That way, you’ll be able to focus on other financial goals.
Let’s take a look at the loan process step by step to help you uncover ways to repay your student loans faster.
Write Down Your Loan Details
1- What’s The Amount Of Your Debt?
The first step in repaying your student debt is knowing exactly how much you owe.
You’ll need to tally all your student loans - be they federal or private. Your latest loan statement should contain all of this crucial information.
If you haven’t applied for a loan yet, you’ll need to calculate your estimated tuition fees and any other costs you plan to finance using a student loan.
This will give you a rough idea of the amount you’ll need to repay after graduation.
2- What Type Of Loan Are You Going To Use?
There are three main types of student loans: federal loans, private loans, and refinancing loans. Each one has pros and cons that you’ll want to consider before you choose between them.
For most students, federal loans offer the most benefits and are easier to apply for. However, the borrowing limit on these loans may not cover your entire cost of tuition - that’s where private loans can offer a great advantage.
If your credit or your co-signer’s credit is good, you could also secure a lower interest rate by opting for a private loan.
Here’s what you need to know about the various student loan types.
Federal loans are provided by the government. Most of them don’t require a credit check or co-signer and are available to all high school graduates.
You may be able to benefit from easy repayment terms and partial debt forgiveness on these loans if you choose a career in the federal government.
- Direct subsidized loans are provided by the federal government to students in financial need. You won’t need to pay interest on the loan while you’re in school or during your post-graduation grace period.
- Direct unsubsidized loans accrue interest while you’re studying and during your grace period. This interest will be added to your total loan amount (known as the principal amount).
- PLUS loans are aimed at graduate school students. They require either the student or their parents to have a reasonably good credit score and interest is payable on them.
Private loans are offered by banks and other financial providers. They require a credit check, usually a co-signer, and may charge a lower interest rate than federal loans if your credit rating is good.
However, debt forgiveness for private loans is almost never possible.
Refinancing loans are used to secure a lower interest rate for existing loans.
If you’ve already graduated college with student loan debt and would like to repay it at a better interest rate, you can consider these loans. A credit check, and sometimes a co-signer, will be necessary.
3- What Is The Interest Rate?
The amount of interest you pay on a student loan determines how quickly you’ll be able to repay it. Ideally, you’ll want to opt for the lowest interest rate possible on your loan amount.
4- Use The Grace Period
The grace period of your loan is typically 6 months after graduation. You won’t need to make any repayments during this time, but if you can afford to, you definitely should.
Interest is charged on your loan during the grace period, and if you don’t make any loan payments for the first 6 months your total outstanding amount will increase by several percent.
By making payments during your grace period, you’ll bring down your total loan amount and interest charges later.
5- Calculate Your Monthly Payment
Once you’re ready to start repaying your loan, you’ll want to make the highest monthly payment you can afford. Using a loan calculator, plug in your total loan amount, interest rate and repayment period to see how much you need to pay each month.
6- Adjust It To Your Budget
It’s always a great idea to make extra loan payments when you can - but not if it means going without essentials. It’s all about balance.
As your income increases, you can allocate extra funds to your loan repayments.
7- Make it AutoPay
AutoPay is a very useful feature that’s offered by nearly all loan providers. Once you set it up, your loan repayment will be automatically deducted from your bank account each month and you won’t have to worry about missed payments or a negative credit score impact.
8- Use ‘Found’ Money
Windfalls and unexpected income like bonuses raise, monetary gifts and even inheritances can all be used to pay off your student loan faster.
9- Consider Consolidating or Refinancing
Consolidating your student loan means combining several loans and repaying them at once. If you consolidate your federal loans, you may benefit from a debt forgiveness program that will lower your total loan amount.
When it comes to private loans, consolidation doesn’t give you the option of debt forgiveness.
Refinancing involves taking out a new loan that’s equal to the value of your existing loans but at a lower interest rate. As with consolidation, if you refinance federal loans using a private lender you’ll lose some of the benefits like subsidized interest payments and debt forgiveness options.
Repaying your student loan will let you free up your monthly income for important financial goals like property and vehicle purchases, traveling, and investing for your future.
By following the steps above, you’ll be able to repay your student loan debt faster while moving on to the next phase in your financial life.