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According to recent statistics, about 70 percent of college graduates leave college with an average of $40,000 in student loan debt. If you are reading this, you may be one of the millions of people shouldering the weight of student loans in the U.S.
While student loans are easier to put on the back burner than credit cards, that doesn’t mean they’re not important to keep up with. You just need to adjust your mindset about paying off your student loans. You CAN pay them off, and they ARE part of your overall debt portfolio. That means like your credit cards, you should have a plan to pay off these loans as early as you can.
While you might not be prioritizing paying off your loans while you’re still in college (and likely unemployed or underemployed), once you’ve got that degree in your hands, it’s time to make a plan!
If you’re looking to tackle your own student loans, you’ve come to the right place. Here, you’ll find everything you need to know about the best way to pay off your student loans including how to keep track of them and how to consolidate or refinance your student loans if it becomes necessary.
How do student loans work? The student loan life cycle
Before we dive into how to pay off student loans, let’s take a look at what happens before all that. What happens to your student loan 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
- A complete payoff of the loan
As long as you're enrolled in college at least half-time, your student loans will be classified as “in-school deferment.” 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’s added to your student loan principal. Paying off accrued interest before it’s capitalized into your loan can save you a ton of money!
That being said, here are six tips to conquer your student loans.
1. Get an understanding of what you signed up for e.g. interest rates, accrual periods etc
Do you even remember what was in the promissory note that you signed? If you’re like most student loan borrowers, you probably signed your loan agreement paperwork without much of a second thought. Chances are, you probably can’t recall exactly was included in that agreement. If you’re in that boat, start by requesting 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. 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, what type of loan they are (Federal vs private), and the default repayment plan requirements.
The first step to organizing your loans 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. Consider using online tools like Personal Capital 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 you to effectively manage your student loans.
3. Prioritize your student loan repayment
Hoping to get out of debt ahead of schedule? You’ll have to prioritize getting rid of your student loan debt. As you pay off credit card debt (if you have any), your student loans should be your next priority. The one good thing about student loans is that interest rates are typically low.
Make sure your weekly or monthly budget includes your minimum student loan payments, plus any extra you can put toward them each month. This means if you have any spare money, instead of shopping or going out to eat, apply some of it toward knocking out your student loans. This is one of the fastest methods if you're trying to figure out how to pay off student loans.
One great way to stay on top of this consistently each month is by building your extra payments into your budget. This will help you create a plan in advance of each month.
If you have private student loans, focus on paying those off first, since private loans offer less flexibility for deferment and forgiveness.
Clever Girl Tip: If you’re able to make more than the minimum payments on your student loans, make sure your additional payments are being applied to your principal and not to the interest. Many creditors will apply your payments to interest by default, so be sure to check on this!
4. Make your own repayment plan
Extended repayment plans have been touted as a solution for student loan debt, but who wants get stuck paying student loans for 25 years? Incorporate your own realistic deadline for getting out of debt and work toward that. Even if you fall short or have to readjust your payoff schedule, making your own timeline can be extremely motivating.
Set a goal, work tirelessly toward it and make adjustments as necessary. But the key is to keep working toward your own timeline for paying off your debt.
5. Don’t skip student loan payments
Skipping loan payments just adds to the amount of time and interest you’ll have to pay on your loans. When you graduate, you may get a student loan grace period. This allows you to skip payments for a certain amount of time. If you don't have to, don't do it—make those payments!
Wondering how to pay off student loans if you are currently unemployed? In that case, it's okay to defer your loans until you can pay them. But as soon as you start working again, you should start making your loan payments. And if you can afford to while unemployed, at the minimum, make your interest payments so you are at least paying something.
6. Look into student loan forgiveness programs
You don’t need to wait until you graduate from college before you start strategizing your student loan pay off. One smart approach is to research student loan forgiveness programs 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—it’s a great 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 for your specific state. 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. What’s more, some employers are now offering Student Loan Repayment Benefits as a perk.
Loan forgiveness programs are a great option when it comes to paying off student loans. Other strategies to consider are consolidating your loans and refinancing them. We'll discuss them below.
Should I refinance my student loans or should I consolidate my student loans? Student loan consolidation versus refinancing
If you are considering whether to refinance or consolidate your student loans then there are some key things to keep in mind about how each of these processes works. Consolidation and refinancing are terms that are often used interchangeably but are used in different ways to restructure existing debt, including student loans.
These processes involve taking out new debt to pay off existing loans. The terms relating to the annual interest rate, the monthly payment, and the length of the repayment period for the new loan will depend on the purpose of the loan and the lender. Keep in mind that loan application and processing fees may also be involved with these types of loans.
Consolidation is a type of debt refinancing that involves the process of taking out one loan to combine multiple debts. The main purpose of a consolidation loan is to streamline repayment and, in a lot of cases, extend the length of repayment. A consolidation loan can have the same or completely different repayment terms than the original loans.
Refinancing is the process of taking out a new loan to replace one or more existing loans at a lower interest rate, typically through a new lender. Two really awesome and fully transparent platforms to consider if you choose to refinance your student loans are LendKey and Common Bond.
What to consider before consolidating or refinancing your student loan
Consolidating and refinancing are viable ways to simplify your repayment process and accelerate your student loan debt pay-off, but must be considered carefully. Since both of these options involve taking on new debt, be sure to consider the following:
- Fees and other charges associated with processing a new loan
- Cost savings associated with a new loan after accounting for application and processing fees.
- How the terms of the new loan will help you accelerate your debt pay-off.
- Whether you can commit to paying off the new loan faster than the loan repayment term.
- Whether the lender is reputable and has a good record of customer service and record keeping and provides seamless access to account information.
Remember, where there’s a will, there’s a way! You can pay off your student loans, regardless of whether you have $5,000 or a $150,000 in student loan debt. It helps to have a vision for your life after your student loan debt is paid off and work toward making that vision a reality. Once you have committed to do the work to get there, make a plan to pay off the debt.
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.