According to the Federal Reserve Bank of New York, while outstanding debt held by Americans has begun to shrink since the 2008 recession, student loan debt has continued to grow.1 The total debt from American student loans is now second only to mortgage debt, and shows no sign of decreasing. While paying for a quality education without student loans may be unavoidable, there are many ways to ensure that debt is paid off in a timely manner, and with minimal hassle.
Start budgeting for loans as soon as possible
It’s hard to start thinking about paying off loans as soon as you start school, but your future self will thank you for setting aside any extra cash to pay off debt later. One suggestion from financial planner Clayton Shearer via Bankrate.com: Get a part-time job and start saving.2 According to Shearer, besides the obvious benefit of building skills that can be used in a future career, any money saved from a part-time job can make a dent in debt owed after graduation. If you couldn’t save during school, it’s never too late to begin after graduation either. Take advantage of direct deposit or online banking options that automatically transfer a set amount of your paycheck into savings. Forbes contributor Rob Berger points to the 10 percent rule of thumb,3 a general goal of saving 10 percent of each paycheck. Feel free to save more or less than this depending on how much you owe and how quickly you want to pay it off.
Know your options
Even with the most strict budget, making the minimum payment on your student loan each month can be a struggle. Fortunately, there are options to make paying debt easier. One of the first things to consider is your payment due date. As the U.S. Department of Education advised, changing your payment due date or your repayment plan based on your income can make it easier to pay back your loan on time. Another option to look into is loan deferment and forbearance.
According to the Department of Education, “deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed.” For certain types of loans, the federal government may even pay some of the interest on the loan while it is in deferment. Forbearance can help if you’re struggling to make payments. When placed in forbearance, payments can be delayed up to 12 months. Refinancing your loan is yet another option. When you refinance your loan, as NerdWallet explained, you can get a new loan with a more favorable interest rate,4 repayment term or monthly payment amount. All of these options may be worth looking into if you struggle to make minimum payments, or if you just want to get a payment plan that’s right for you.
Loan forgiveness, cancelation and discharge
Under certain circumstances, your loan may be eligible for forgiveness, cancelation or discharge. As Robert Farrington, a Forbes contributor, explained, these options are only available to those who meet very strict criteria,5 which include having worked for a public service organization and utilizing a qualified repayment plan. If you do qualify for forgiveness, cancelation or discharge, you must submit the proper documentation to your loan servicer each year, or this privilege can be revoked.
If you want to learn more about budgeting and saving for student loans, or other common financial situations and emergencies, visit the Cash Central Resource page.
The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®.
1Federal Reserve Bank of New York. (2013, Mar 29). Retrieved from: https://www.newyorkfed.org/studentloandebt/index.html
2Luthi, Ben. (2022, Oct 11). Retrieved from: https://www.bankrate.com/loans/student-loans/repay-college-loans-fast/
3Berger, Rob. (2015, Mar 3). Retrieved from: https://www.forbes.com/sites/robertberger/2015/03/03/how-much-of-your-income-should-you-save/?sh=7c5f72f77fbd
4Nykeil, Teddy. (2022, Jan 24). Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/how-to-refinance-student-loans
5Farrington, Robert. (2015, Jan 12). Retrieved from: https://www.forbes.com/sites/robertfarrington/2015/01/12/the-dangers-of-student-loan-forgiveness/?sh=7e1537b62283