It's no secret that student loan debt is a growing problem in the United States. According to the Institute for College Access and Success, 62% of college seniors who graduated in 2019 had student loan debt, with an average of $28,950 per borrower.
What may be less well known is that there are various repayment options available to borrowers and that choosing the right one can save you a significant amount of money.
Here's some advice on repayment and borrowing to help you make the best decisions for your situation.
1. Know Your Loan Terms
Before you begin repayment, it's important to understand the terms of your loan. This includes the interest rate, length of the repayment period, and any fees associated with the loan.
You can find this information in your loan documents or by contacting your lender. It's also a good idea to stay up-to-date on any changes to the terms of your loan, such as a change in the interest rate.
2. Choose the Right Repayment Plan
There are several different repayment plans available for federal student loans, and each has its own eligibility requirements and benefits.
The standard repayment plan has a fixed monthly payment for up to 10 years. If you can afford this plan, it will save you the most money in interest over time.
However, if your income is low or you have a large debt, you may want to consider an alternative repayment plan. For example, the income-based repayment plan sets your monthly payment at a percentage of your income and extends the repayment period to 20 or 25 years.
3. Make Payments On Time
It's important to make your student loan payments on time, as missed or late payments can damage your credit score and incur additional fees. If you're having trouble making payments, contact your lender as soon as possible to discuss your options.
4. Pay More Than the Minimum
If you can afford it, paying more than the minimum on your student loans is a good way to save money on interest and get out of debt faster.
For example, if you have a $10,000 loan with a 5% interest rate, you would save over $2,000 by paying an extra $100 per month.
5. Refinance Your Loans
If you have good credit and a steady income, you may be able to refinance your student loans at a lower interest rate. This can save you money on interest and help you get out of debt faster.
When considering refinancing, it's important to compare the new loan terms with your current terms to make sure you're getting a good deal.
6. Consider Student Loan Forgiveness
Depending on your job and repayment plan, you may be eligible for student loan forgiveness. This means that the remaining balance of your loan will be forgiven after you make a certain number of payments.
For example, if you work in public service, you may be eligible for the Public Service Loan Forgiveness Program. This program forgives the remaining balance of your loan after you make 120 qualifying payments.
Before applying for any forgiveness program, it's important to understand the requirements and how they will affect your taxes.
7. Borrow Only What You Need
When taking out student loans, it's important to only borrow what you need. This may seem like common sense, but many students borrow the maximum amount they're eligible for without considering the long-term consequences.
If you take out more loans than you need, you'll end up paying more in interest and fees. Only borrow what you need to cover your tuition, books, and other expenses.
Final Thoughts
When it comes to student loans, it's easy to get overwhelmed. However, by following the tips above, you can make the best decisions for your situation and save money in the long run.
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