This week's blog post comes from the fabulous Melisa Boutin of YourMoneyWorth.com. Previously, Melisa had shared her Money Story with us in which she talked about the $68,000 of debt that she had in mostly student loans after completing graduate school and how she has been able to pay $37,000 back so far over the last 5 years. Today she's back again, this time to teach you how to get a handle on your student loans and create a solid plan to pay them off just like she is doing. Enjoy!
Paying off student loan debt can be very stressful but if you create a solid plan, you can be successful on your journey to becoming debt free and these 7 ways will help your conquer that debt.
1. Get an understanding of what you signed up for
Do you even remember what was in the promissory note that you signed? If you are like most student loan borrowers, you signed your loan agreement paperwork without much of a second thought and you probably can’t recall exactly was included in that agreement. Go ahead and request a copy of your promissory note from your student loan servicer and review the agreement line by line.
The promissory note contains information about the terms and conditions of the loan, including:
- The loan interest rate and type (variable vs fixed).
- Interest accrual period.
- In-school, deferment, forbearance, repayment and post-graduate grace periods.
- Student loan capitalization.
- Loan fees, late charges and collection fees.
- How payments on your student loan account will be applied.
Get familiar with these terms and conditions and ask questions about anything that you don’t understand. After all you can’t make an effective plan to pay off your student loans if you don’t even know what you signed up for!
2. Make sure you are familiar with you student loan cycle
What happens to your student loan account balance after the loan is initiated and you receive the loan funds? As you go through college, what happens to the interest that accrues? What about after graduation? The answer to these questions all depends on which stage of the student loan cycle your loan is in.
In general the stages of the student loan cycle include:
- Loan initiation
- In-school deferment period
- post -graduate grace period
- Repayment period
- Other Deferment or Forbearance periods
- Complete payoff of the loan
Typically your student loans are in-school deferment, as long as you are enrolled in college at least half time. Whether interest accrues during that time, depends on whether your student loan is a private or Federal unsubsidized or subsidized loan. The same goes for the post graduation grace period. If this information is not clear to you from your review of your student loan promissory note, contact your student loan servicer to find out.
Once you determine how interest will accrue and on which loans, get confirmation on whether you can pay off the accrued interest before it is added to your student loan principal. If you are able to pay off the accrued interest before it is capitalized into the loan, you can save money on the front end and potentially reduce the length of your repayment period.
You need to be aware of what happens to you student loan balances of principal and interest throughout the cycle of your student loan. Reviewing your student loan documents and communicating with your student loan lender will help you stay informed about how your student loans work. You will then be in the best position possible to manage your student loans and make an effective plan to pay them off.
3. Research Student Loan Forgiveness Programs and Employee Benefit Programs
You don’t need to wait until you graduate from college before your start strategizing your student loan pay off. One smart approach is to research student loan forgiveness programs that you may be eligible for and ensure that you thoroughly understand the requirements to sign up for these forgiveness programs.
The Federal Student Aid website provides information on the Federal Forgiveness programs available for Federal student loans. That would be a good place to start. Keep in mind, however, that the Federal Government is not the only one in the student loan forgiveness business. Make sure to research loan forgiveness programs at the state and local level. The New York State Higher Education Services Corporation, for example, has a number of student loan forgiveness programs for its state residents, including:
- Loan Forgiveness for District Attorneys and Indigent Legal Services Attorneys
- Loan Forgiveness for Licensed Social Workers
- Nursing Faculty Loan Forgiveness Incentive Program
- New York State Young Farmers Loan Forgiveness Incentive Program
- New York State Get on Your Feet Loan Forgiveness Program
And this is just New York State! There are even more ways to get rid of your student loans. Check out the 100+ Ways to Get Rid of Your Student Loans (Without Paying Them) Book, as a free resource.
When it comes to employee benefits, some employers are now offering Student Loan Repayment Benefits as a perk.
4. Organize and keep track of your student loan debt
As annoying as it may be, you need to know exactly how many student loans you have, their balances, interest rates, whether they have been capitalized, the loan type (Federal vs private) and the default repayment plan requirements. There is no ‘set it and forget it’ when it comes to your student loans. You will also need to organize your documents and correspondence with your lender because these institutions can make mistakes on your account and keeping proper documentation will give you leverage.
The first step to organizing your student loan information is to track down your student loan information from a copy of your credit report and the National Student Loan Data System for Students website, where you can find all your Federal student loan accounts. If you aren’t in the U.S., contact your student loan servicer and ask for up-to-date records for your student loan accounts.
Once you have all your student loan account information, keep all physical documents together in a safe place. Also consider using online tools like, Personal Capital to to keep track of your student loans, balances, interest accrued and payment due dates.
Having all your student loan documents organized will make it easier for your to effectively manage your student loans.
5. Prioritize repayment of your student loan debt
If you want to be out of debt in less than 10 or 25 years, you have to prioritize getting rid of your student loan debt. Whether that involves signing up for a loan forgiveness program or making extra payments to make your student loan balance decrease as quickly as possible.
As I said before, there is no ‘set it and forget it’ with you student loans. If you have private student loans, focus on paying those off first, since private loans offer less flexibility for deferment and forgiveness.
When it comes to Federal Student Loans, you should consider consolidating all your federal student loans to make the repayment process more manageable, by having one servicer instead of 3 or 5 different ones. Keep in mind, however, if your have both your own Federal student loans and a Federal Parent PLUS Loan for a child, consolidating these two types of student loans may limit the repayment programs that are available to you. Complicated stuff, I know.
The key is to to formulate a repayment plan that suits your situation, and ma. You can decide to stick with the default repayment plan set up by your student loan service or explore or compare options like refinancing.
Use tools like "Ready For Zero" to organize all your debt.
6. Make Your Own Repayment Plan
Extended repayment plans have been touted as a solution of student loan debt, but if you are paying student loans for 25 years you have a mortgage on your hands. Incorporateyour own realistic deadline for getting out of debt and work towards that. Even if you fall short or have to readjust your payoff schedule, making your own timeline can be extremely motivating.
My initial timeline was to pay off my student loans in 3 or 4 year, and during my first year of working full time after graduating I paid of $13,000 of debt. I ultimately had to adjust my pay off goal due to some personal setbacks but was still able to pay off $37, 000 in 5 years, even though I have a 20 year repayment plan.
Set a goal, work tirelessly towards it and make adjustments as necessary. But the key is to keep working towards your own timeline for paying off your debt.
Other strategies to consider when you are trying to accelerate your payoff is to make interest payments on your student loan during the post-graduation grace period, or any other deferment or forbearance periods. This will help you avoid lengthening the lifetime of your student loans, even if you access relief from your student loan payments for a temporary period of time.
Another key approach to reducing the lifetime of your student loans, is to make extra payment towards your principal balance. Just make sure you verify with you lender the correct way to send in extra principal payments and track them closely.
7. Make the Decision To Actually Pay Off Your Student Loans
Where there’s a will, there’s a way to pay off your student loans. Whether you have $5,000 or a $150,000 in student loan debt, you have to really want to get rid of your student loans for it to actually happen. Keeping your head in the sand and a ‘woe is me’ attitude will, for sure, keep you in debt.
Have a vision for your life after your student loan debt is paid off and work towards making that vision a reality. Once you have committed to do the work to get there, make a plan to pay off the debt.
Research student loan forgiveness programs that you might be eligible for, and if you truly have limited income, have a financial setback, or you have defaulted on your student loans and feel buried by debt, explore undue hardship adjustment or discharge or negotiate with your lender. Getting a side hustle can also help you earn more money that you can use for extra principal payments and accelerate your pay off.
Conquering your student loan debt to live the life you’ve envisioned will take time and commitment. Paying off large amounts of student loan debt is never easy but developing and plan and following through with it makes it totally achievable.
Melisa Boutin runs the website yourmoneyworth.com , where she provides personal finance resources for Caribbean Millennials. She is passionate about helping Caribbean Millennials do better with their money especially when it comes to student loans. In December 2015, she paid off her Caribbean student loans, and has since focused on assisting other borrowers analyze their student loan account statements, navigate the repayment process and develop plans to effectively pay off student loan debt from Caribbean Banks.