Can you make student loan payments? Try these five strategies to make them more manageable. (iStock)
The CARES Act puts student loan payments on hold for the time being, but that relief will not last forever. It also does not apply to private student loans.
Fortunately, if you are struggling to keep your student loans up to date – now as after the CARES Act has expired – there are several ways to reduce these payments and manage remaining. Just try these five strategies:
1. Refinancing student loan
Refinancing your student loans allows you to reduce your monthly payments. This essentially replaces your existing loans with a new one – ideally one with a lower interest rate. You can also refinance in a longer term loan, which will also reduce your payments.
Keep in mind that rates vary widely between lenders, be sure to use a tool like Credible to both shop and view rate tables from different lenders.
You should also use a reliable student loan refinancing calculator to get a feel for what your new payments might be – and if the move is worth it. You can also plug your information into Credible’s free online tool to determine what types of rates you are currently eligible for.
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2. Consolidate your loans
If you have multiple loans – or just a mix of federal and private – consolidating them then you can reduce costs. This allows you to roll out all your loans in one go, potentially lowering your interest costs and your monthly payments.
As with refinancing, it is important that you shop around before consolidating your loans. Interest rates on student loans can vary wildly from one lender to the next.
If you decide that debt consolidation is the right move for you, then use Credible to search for the best type of personal loans, rates and terms.
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3. Get on an income-driven repayment plan
If you have federal student loans, an income-based repayment plan (IBR) may be an option. This gives you a personalized monthly payment based on your exact income and household size – not just your balance.
There are three types of IBRs, including:
- Pay when you have earned: This sets your payment at 10% of your discretionary income. The terms for repayment are 20 to 25 years.
- Income-based refund: On this plan, your payment will be 10 to 15% of your discretionary income, depending on when you took out the loans. These also come with 20- to 25-year terms.
- Income tax refund: With ICRs, your payment is typically 20% of your discretionary income. You have 25 years to pay it off.
Discretionary income is based on your income and the local poverty guidelines in your area. Use this calculator to determine you. When you are ready to apply, register an application for income-exorbitant return plan with the Office of Department of Education or Federal Student Aid.
WHAT IS A STUDENT LOAN INCOME-DRIFEN REPAYMENT PLAN?
4. Student loan repayment programs
You can also look into repayment plans for fees, which can help you reduce your payments or even repay your loans in full. These are typically offered through various state and local agencies, as well as by non-profits and community organizations. In some cases, your employer may offer one as a benefit.
If you need help finding an assistance program in your area, this state-of-the-art guide can point you in the right direction.
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5. Graduated as extended repayment plans
For each federal student loan, there is another option: graduate and extended rehearsal plans. This allows you to reduce your payments by spreading them over a longer period or by moving higher-cost payments to the end of the loan – if you are likely to make more money.
Here’s how each option works:
- Graduated repayment schedule: With this option, your payments start small, increasing incrementally every two years.
- Extended refund plan: This method allows you to spread your payments over a 25-year period to make them manageable.
To proceed with any of these plans, you will need to contact your loan servers.
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Keep paying your balances
Once you have reduced your payments, you should still make efforts to pay those student loans aggressively, if possible. Start with the highest interest rate loans first, and if you get windfalls (like a second incentive check, for example), remember to place them at least in part to your credit.
The faster you can pay these balances, the less you will pay in interest over time. Reducing your debt will also help your credit score as well as your future financial options.
Don’t forget to research rates from various companies for refinancing private student loans to make sure you save as much money as possible, if that is the direction you choose to go.
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