Develop a Repayment Strategy
Student debt continues to rise among college grads. A recent report from The Institute for College Access & Success found that 68 percent of graduating seniors from the class of 2015 had student loans with an average debt balance of $30,100 — a 4 percent increase compared with the prior year.
To tackle student debt, here are 10 steps for developing a student loan repayment strategy.
1. Identify Your Loans
Student loan borrowers should identify whether their loans are federal, private or a mixture of both. To find out information on federal loans, borrowers can log in to the National Student Loan Data System, a central database for student aid.
For borrowers with private loans, experts recommend getting a credit report to find out the name of the lender and debt amount.
2. Contact Your Loan Servicer
Borrowers with federal student loans aren’t able to choose their service provider; the loan servicer is assigned by the Department of Education.
Loan servicers manage student loans and act as a third party between the borrower and the lender. Payments are handled by the servicer, and experts say it’s important to learn about the servicer’s policies — especially payment methods.
3. Learn About Federal Loan Protections
The main difference with federal student loans as compared with private loans are the protections guaranteed by the Department of Education. Protections include loan forgiveness after 10 years of public service, the option to delay or forgo payments through deferment or forbearance and the ability to discharge a loan from a permanent disability.
Private loans don’t offer flexible repayment terms or the type of borrower protections as federal students loans, according to the Consumer Financial Protection Bureau.
4. Understand Repayment Plan Options
For federal student loans, there are a range of repayment options from a standard repayment plan to different income-driven repayment plans.
“Income-drive repayment plans can be the best long-term option for some borrowers, particularly those with high loan balances and limited earnings prospects,” said Stephen Dash, founder and CEO of Credible, a multi-lender marketplace for student loans and loan refinancing, in an email.
5. Learn About Loan Consolidation
Consolidating multiple loans is one way borrowers can stay on top of payments, bundling multiple loans into one single loan. But, experts say, borrowers should be aware that unlike with private loans, a direct consolidation with federal loans doesn’t offer a lower interest rate.
In some cases with federal student loans, borrowers will need to consolidate their loans to qualify for certain programs such as Public Service Loan Forgiveness or the Department of Education’s Revised Pay As You Earn, an income-based plan commonly known as REPAYE.
6. Calculate Monthly Payments
Borrowers can use online repayment tools to estimate monthly payments. One tool offered by the Consumer Financial Protection Bureau, a government agency that oversees consumer borrowing, is a web guide that shows the maximum expected payment under certain income-driven plans.
Another web tool provided by Student Loan Hero, a website that provides information on student loan repayment, is self-service and uses personalized information from borrowers to generate tailored payment options.
7. Tackle Bigger Loans First
Experts recommend prioritizing payments toward loans with higher interest rates.
“I make monthly payments on all seven of my loans, but only two of them have interest rates higher than 6 percent. I make larger payments on those two, and small payments on the rest,” said Bonnie Carleton, a recent graduate from the University of Maine–Farmington, in an excerpt posted to the SALT Central Community, a financial literacy program.
8. Research Student Loan Refinancing Options
Around 40 percent of Americans with student debt ages 21 to 40 say they weren’t aware they could refinance a student loan to reduce payments and interest, according a to a recent survey by Credit Karma, a free credit and financial management platform.
While refinancing with a private lender can secure a lower interest rate and reduce the lifespan of the loan, experts say these lenders don’t offer the same protections featured in federal student loans.
9. Apply for a Student Loan Repayment Plan
When a federal loan becomes due, unless the borrower contacts the servicer about a different option, repayment defaults to the standard plan. Under a standard plan, payments are fixed up to a 10-year period. Borrowers interested in an income-driven plan need to fill out an application.
“Income-driven plans cap your monthly payments at a percentage of your discretionary income, usually 10 percent or 15 percent,” said Dash from Credible.
10. Develop a Personal Budget
After determining a payment plan, experts say it’s important to keep track of other monthly expenditures, such as food and housing, to stay on top of bills.
“If you have received student loans to help with the cost of college or career school, then a budget will help you make the most of the money you’ve borrowed and can help you determine how long it will take to repay your debt,” according to the Department of Education’s website.
Learn More About Student Loans
The quest to manage your student debt shouldn’t end here. Follow the Student Loan Ranger blog, which offers guidance on student loans.
You can also follow U.S. News Education on Facebook and Twitter to join the conversation and stay informed about the latest tips and advice on paying for college.
More from U.S. News
10 Student Loan Facts College Grads Need to Know
8 Facts About Direct Student Loan Consolidation
10 Famous People Who Have or Had Student Loans
10 Steps to Develop a Student Loan Repayment Plan originally appeared on usnews.com
