How to Pay Off Student Loans: Your Game Plan
We know you have big plans for post-college life. Whether you intend to start a small business or travel the globe, you need money to make it happen.
Student loan payments could decrease the disposable income available for other financial goals. Fortunately, having a game plan to pay off student loans can minimize the impact on your finances. Start by stepping up to home plate with a budget.
Calculate Costs and Free Money First
Before you take on a student loan, whether it’s your first or an additional loan, make sure you actually need the funds. For example, if the total costs for room and board, books, tuition, tech expenses, etc. are already covered by a 529 Plan, grants, or scholarships, taking out a student loan might not be the best financial move..
While it’s tempting to accept the funds and use them for luxuries like eating out and entertainment, you’ll end up with a larger than necessary student loan payment after graduation. You can use projected entry-level salary calculators and the FSA Loan Simulator to determine how much you can afford to borrow. Examining what a future payment might look like compared to your expected salary fresh out of college can help you create an appropriate budget.
Next, understand the differences between the two main types of student loans.
Student Loan Options: Do Your Research
Before signing a promissory note, compare loan options to ensure you choose the loan that meets your needs today and in the future. Research the advantages and disadvantages of the two most common types of college financing: federal student loans and private student loans.
Features of Federal Student Loans*
- Loan forgiveness opportunities
- Borrowing limits based on loan type and undergraduate/graduate status
- Financial need may be a factor in eligibility
Features of Private Student Loans
- Credit-based approval
- May require a co-borrower (or co-signer) if you do not have a steady source of income or sufficient credit history
- Typically have higher interest rates compared to federal loans
There are multiple options within each loan type. For example, federal student loans are available to undergraduate students, graduate students, and parents of undergraduate students. Private student loan lenders may offer similar options, but additional eligibility requirements may apply.
Depending on college costs and your financial aid award, you may need both types of loans to cover your expenses. Your specific situation will determine whether acquiring either type of loan makes sense. You must understand your options before signing a promissory note.
Now, let’s get clear on the repayment options of your preferred loan type.
Know Your Repayment Options
After you’ve researched college costs, established a borrowing budget, and explored various loan types, it’s time to examine repayment options. The more repayment options you have, the easier it will be to handle changes to your income post-graduation.Federal student loans may have an option for income-driven repayment plans, which use various metrics to determine payment amounts and repayment periods. Private student loan repayment options can vary significantly based on lender requirements.
Common Federal Student Loan Repayment Plan Features
- First payment is due 6 months after you graduate or fall below half-time enrollment
- Allows temporary pause in repayments if you meet forbearance or deferment requirements
- Repayment periods of 10 to 30 years
- Repayment plans are based on loan type and amount owed
- Standard: Fixed payment amount resulting in a 10-year repayment period
- Graduated: Payments start low but increase every 2 years, resulting in a 10-year repayment period
- Extended: Standard or graduated payments that extend to 25 years
Common Private Student Loan Repayment Features
- First payment may begin immediately after the loan is fully disbursed
- In-school deferment options may be available
- Repayment terms vary by lender; our lenders may offer repayment terms up to 25 years
- Repayment plans fall into three categories (not all lenders will offer all options):
- Fixed repayment that requires a small monthly payment while in school followed by a larger principal and interest payment when you fall below half-time enrollment
- Interest-only payments while in school followed by principal and interest payments when you fall below half-time enrollment
- Full deferment, which does not require repayment until you graduate or fall below half-time enrollment
Some private student loan lenders may also reduce or suspend payments if you find yourself temporarily unable to make the required minimum payment.
Track Your Student Debt
Keeping a running total of how much you borrow from each lender, estimated monthly payments, and repayment options could help keep borrowing to a minimum. Staying organized can also ensure you notice changes to interest rates or other loan features over the life of the loans.
Pay attention to how payments are applied to your balance to ensure you eliminate the debt sooner rather than later. These details might inspire you to make extra payments or apply a financial windfall to the balance to pay it off quicker
Communicate with your Lender
Your lender is available to answer questions about the student loan process — from application to final payment. Most lenders are eager to assist students with their repayment plans and refinancing, whether through borrowing advice or exploring options that help you avoid defaulting on your loans.
Credit Union Student Choice has partnered with leading credit union lenders who can connect you with competitive variable and fixed interest rate private student loans to meet your college financing needs. Our flexible funding sources and one-on-one personal support make choosing us to help cover your education expenses an easy decision. Get started today!
*The pause on federal student loan payments and interest has been extended through 12/31/2022. In addition, the Biden Administration also announced that Federal student loan borrowers who earn less than $125,000 per year, or households earning less than $250,000, are eligible for debt cancellation up to $20,000 for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. For details, please visit studentaid.gov or contact your federal student loan servicer. NOTE: These measures are strictly tied to federal student loans and have no impact on any private student loans you may have.