Whether you’re the kind of person who likes to make resolutions starting the first of the year or not, now is a good time to re-evaluate your student loan repayment strategy. It’s easy to pick a strategy and let it sit on autopilot. Today’s post is going to cover the basic student loan repayment options and help you evaluate your current strategy.
Estimated read time ~ 6 minutes. Estimated watch time at 1.5x ~4 minutes.
Evaluate Your Repayment Strategy
There are three things to consider when assessing if your repayment strategy is right for you.
How affordable is your current strategy?
Are your monthly payments easy to make, sometimes easy sometimes a stretch, or difficult to afford?
Does your current strategy match your student loan goals?
Are you wanting to pursue loan forgiveness, pay off your loans as quickly as possible, or pay as little as possible each month?
How do you feel about your current strategy?
Do you feel indifferent, empowered, or stressed out about your current strategy?
If your current strategy isn’t affordable for you and is stressing you out, it’s obvious it’s time to make a change. But if your payments are easy to make and you’re feeling indifferent it’s just as important to make a change.
Repayment Plans
The right repayment plan is the very first step to assess. You have the most control over your repayment plan choice when you have federal student loans. All of the repayment plan choices discussed below are for federal student loans. You can choose from income-driven plans to make your monthly payment more affordable and as one part of making eligible payments toward PSLF or Income-driven loan forgiveness.
If your payments are unaffordable, an income-driven plan can lower your monthly payment. The downside of an income-driven plan is that the longer you take to repay your student loans, the more interest you’ll pay. Ultimately if you can’t afford your monthly payments, that may be a worthwhile tradeoff.
However if you can easily afford your monthly payments, it makes sense to be on an aggressive repayment strategy such as the 10-year standard repayment plan. Under that plan you’ll make a fixed monthly payment and repay the entire balance of your student loans after 10 years. You’ll pay the least amount of interest under this plan.
You can read more about repayment plans here.
Student Loan Forgiveness
For some borrowers student loan forgiveness is a very appealing opportunity. Right now, the most talked about loan forgiveness option is Public Service Loan Forgiveness (PSLF). In general student loan forgiveness programs are very specific in their eligibility criteria and the three federal programs only forgive federal student loans.
Here’s a quick breakdown of the three major federal student loan forgiveness options.
First up is PSLF, this program is designed to forgive the remaining student loan balance for borrowers working in public service jobs or at non-profit, government, or tribal organizations after 120 eligible payments are made (10 years minimum).
Next is Teacher Loan Forgiveness, designed to forgive up to $17,500 for specific highly qualified teachers in low-income school districts after 5 years of teaching.
Lastly is income-driven loan forgiveness, an option available to potentially everyone with federal student loans. This option forgives the remaining balance of student loans after 20-25 years of income-driven monthly payments.
You can read more about the different loan forgiveness options here.
Student Loan Refinancing
Finally, an option that suits the repayers with private student loans, federal student loans, or a mix of both. Refinancing is the only option that can potentially lower a borrowers interest rate. Here are a few situations to keep in mind.
If you have federal student loans, refinancing your student loans makes them private loans and ineligible for federal loan forgiveness programs and federal student loan benefits forever. You can’t make refinanced student loans federal loans ever again.
If you have private student loans, refinancing doesn’t carry much risk. If you can get a lower interest rate on the student loans, especially if you can get a fixed interest rate that’s lower, you’ve got the green light. You won’t give up borrower protections because you didn’t really have many to start with.
If you have a mix of student loan types, you may want to consider refinancing only the private student loans and leaving the federal student loans as they are. It all depends on your unique situation.
You can read more about refinancing here.
After looking at your student loans do you need a new repayment strategy this year or are you on track smashing out your goals? Let me know in the comments below or on the Repayable Facebook Page.
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