As of this October, student loan debt payments are resuming after a 3-year, pandemic-induced pause that began in March 2020. This development places recent graduates and borrowers in a challenging situation, as they will now face hefty monthly payment obligations.
Student debt is the money owed on a loan taken out to pay for educational expenses such as tuition, housing, books and supplies, administrative fees, and advanced degrees. Currently in the U.S., about forty five million borrowers owe a combined $1.77 trillion in federal and private student loan debt. Recent graduates must now navigate the complexities of repaying their student loans in a time where budgets are tight and job market uncertainties loom over them. The aim of this blog is to provide guidance to recent graduates and other borrowers who are resuming payments after the 3-year break. It will help you better understand your student loans and provide tips and strategies for reducing your debt.
Understanding Your Student Loans
There are two main types of student loans - federal and private. Federal loans are funded by the federal government with fixed terms and conditions set by the law. They are often more accessible, have more favorable interest rates, and many repayment options. Payments are not due until you graduate, leave school, or change your enrollment status. Private loans are funded by private organizations such as banks, credit unions, state agencies, or a school. The terms and conditions vary by lender, with private loans generally being more expensive than federal loans, offering fewer borrower protections, and possibly requiring payments to begin before graduation.
Understanding the terms and conditions of your loan is crucial in developing a plan that is best suited for you and your financial situation. If you’re unsure, check with your loan provider to assist you in tracking your loan balance, interest rates, and payment dates. Once your total amount of debt is calculated and you understand the terms of your loans, you should begin looking into repayment options.
What Are My Options For Repaying My Student Loan Debt?
Creating a budget is essential to taking control of your student debt and paving a path for a strong financial future. Once created, sticking to that budget is crucial to see where you might need to cut back on spending and to avoid late payments. There are various budgeting tools and apps available that can help you manage and track your expenses to allocate funds towards payments. The Federal Student Aid (FSA) has great tips for recent graduates or students on how to create a budget to track your income and expenses.
To get an early look at your repayment options, you can use a loan simulator to see which plans you are eligible for and the corresponding repayment estimates. You can also contact your loan provider to further discuss your options. If you have multiple loans, it is usually a rule of thumb to create a strategy that prioritizes paying off loans with the highest interest rates first. Based on the loan or loans you have, here are a few repayment plans to consider:
- Standard Repayment: fixed monthly payments of at least $50 over a predetermined time period, usually within 10 years, or up to 30 years for Direct Consolidation and FFEL Consolidation Loans. Under this plan, you will typically pay less than any other plan.
- Graduated Repayment: starts with lower payments that gradually increase over time, usually every two years, for an amount that ensures your loans are paid off within 10 years. You will pay more over time under this plan than the Standard repayment plan.
- Extended Repayment: fixed or graduated payments over a longer period of time, typically within 25 years. Borrowers will pay less monthly than the Standard or Graduated plans, but pay more over time due to interest.
- Saving on a Valuable Education (SAVE): monthly payments are 10 percent of your discretionary income and is recalculated every year based on your updated income and family size. Any left over balance will be forgiven after 20 or 25 years, depending on if loans were taken out for undergraduate or graduate school. It is important to note that you may pay income tax on the amount that is forgiven.
These options provide flexibility and are designed to cater to different financial situations, enabling borrowers to choose the plan that best fits their circumstances. For those who aren’t sure which plans they are eligible for or need clarity on repayment plans, click here to learn more about your options.
How Can I Reduce My Student Loan Debt Burden?
Dealing with student debt can feel overwhelming, but there are some helpful tips and strategies that can lead you in the right direction when it comes to reducing your debt. If you have student loans, you know the pandemic put loan payments on pause for over 3 years with talk of President Biden forgiving loans up to a specified amount. Unfortunately, in June 2023, the US Supreme Court ruled against Biden’s plan to forgive student loan debt. Not to worry, you may still qualify to have your loan forgiven.
- Income-Based Repayment Plan: must have high debt relative to your income. Your monthly payments are 10 to 15 percent of your income and are recalculated yearly. The monthly payment will never be more than the Standard 10-Year Plan. Note: there are many different types of income-based repayment plans you can apply for. Learn more here.
- Public Service Loan Forgiveness (PSLF Program): must have Direct loans, a type of loan provided by the U.S. Department of Education to eligible students, be employed full-time in a public service position by a government or non-profit agency, and make 120 qualifying payments under an income-driven plan. Getting approved can be difficult so gather all the details in order to qualify.
- Teacher Loan Forgiveness: must be employed full-time as a highly qualified teacher at an elementary, secondary, or educational service agency that serves low-income students for five consecutive years. There are many eligibility requirements, so review before applying.
If you don’t qualify for forgiveness and you’re still struggling to pay your monthly payment, try looking into working freelance jobs, side gigs, or part-time jobs. They are a great way to increase your monthly income and allow you to allocate that extra income towards student loan payments. If you are someone who is on a tight budget every month, it may be worthwhile to set up automatic payments to ensure the allocated monthly amount is paid every month. Always double check your budget before setting an amount so you aren’t spreading your budget too thin.
If you’re looking to pay off your loans as soon as possible, paying more than your monthly balance will retire the loan earlier, as well as save you more on interest payments. If able, you may consider doing bi-monthly payments to allocate more money every month towards your loan.
Conclusion
Navigating student loan debt can feel like a daunting task, especially for recent graduates. Taking proactive steps to manage your debt responsibly will set you on the course for a secure financial future. Understand the type of loans you have and create a budget plan that best suits your financial situation. Explore all the options you have when it comes to choosing a repayment plan and see if you are eligible for any sort of loan forgiveness plans. Remember, this blog only scratches the surface of what options you have available, so always perform your own research as well. There are many other helpful resources at your disposal, such as government websites for loan information and the option to seek advice from a financial advisor if needed.
The information provided here is for general purposes and should not be considered as legal, financial, or investment advice.
-Written by Lindsey Johnson
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