Mastering Student Loan Repayment

From the moment you’re old enough to understand the concept of school, you start hearing it. You need to get a proper education in order to succeed. By the time you’ve finished high school, you’ve gotten to the point where it is career advancement time.

There’s just one more milestone left to go. College is next on your radar, to get the specialized education needed to break into the field that interests you. While you’re at the college level though, you quickly learn that chasing your dreams is not a cheap process.

Before you even get to your living expenses, there’s the matter of your tuition fees. You’ve probably never seen such a price attached to anything, but you know it must be paid. If it’s not, how can you get the education that you need to blossom into who you’re to become as a professional in the working world?

Thankfully, student loans are available, so you use them as your ticket to get past that massive tuition hurdle. Obviously, it’s a loan, and you need to pay it back, but there’s no time to worry about that now. You’re at school for a reason, and that is priority one.

Eventually, you make it to the end. There were many hard times, and there were courses that felt like unwarranted punishment, but you did it. You got your degree, and you’ve now graduated.

This is where it comes back to you. The student loan route is the one you had taken, and since the lender honored its commitment back then, it’s time for you to honor yours now. This is an overview of all the information you need on how to pay back student loans.

Student Loan Statistics

The fact is that most people simply cannot avoid using a student loan to pay for their college tuition. There are some who get scholarships and grants and others who can afford to pay the tuition out of pocket, but this isn’t as frequent and sometimes doesn’t cover everything. Saving for college is not in the cards for many people because it’s not practical to save that kind of money.

According to Forbes, student loan debt in 2019 in the United States was at its highest recorded level in history. In fact, it’s now being billed as a student loan debt crisis. There were approximately 45 million borrowers recorded last year. These people borrowed a combined total of almost $1.5 trillion. This figure makes this form of debt the second-highest, as it only falls behind mortgage debt.

Even credit cards that are notorious for their unbelievable interest rates fall behind this education-related debt. A little over 50% of college students go the route of getting a student loan to pay for their education. There is an average per borrower amount of over $35,000.

Just five years prior, the student loan total debt was $1.06 trillion, which means that there has been a 33% increase.

Know Your Balance and Interest

There are many people who just start making payments without bothering to understand how much is owed. Before you start making your payment, you need to know all the parameters surrounding the amount that you owe.

The first of these is the figure that you owe on each loan, which helps you to understand the aggregate total you owe on all the loans. Remember that there are multiple student loan services, and it’s not just one big loan, so finding out the balances for each service is a great way to help you plan your roadmap.

Establish which of the loans are private and which ones are federal. Remember that private loans are a bit more aggressive, as their interest rates are steeper than those of federal loans. Understanding which loan is which also helps you to calculate the outstanding interest on each (unless the private loans use a fixed pre-calculated interest rate that is baked into your payments).

On the matter of interest rates, you should also gather all the information you can on the applicable interest on each of these loans.

Gathering all this information helps you to understand where you stand so that you can select a repayment plan that best suits you.

The Grace Period

The one saving grace that you have where student loans are concerned is the grace period. When you’ve finished college, the next step is usually to start doing something with the degree. Some people find a job, while some start their own businesses. In fact, there are some students who managed to secure an earning vehicle before they completed their degree. This means that they don’t have to go through a job search once university has ended.

Though some people are that fortunate, lenders understand that most students need some time to find a source of income so they can start paying back the loans. Therefore, a grace period is allocated, which allows students to do so.

On average, you’re given a six-month grace period before you need to start making payments. You should note, however, that if you go below half-time status or drop out, the grace period countdown begins at that time.

Whatever the case may be, the grace period is meant to help you get into a position where you can realistically start making repayments.

Don’t make the mistake of thinking that this is free time in which you don’t need to worry about your loans. On the contrary, this is the time that you need to use to start planning the way forward when payment becomes mandatory.

The first order of business is to do your research. There are different repayment plans and options that offer varying levels of convenience. Find out all you need to about them so you can decide which one of them best suits you.

Don’t underestimate the power of creating a budget. This step is hard to take before you find a means of income. Once you do, however, plan a budget that focuses on reducing your student loan debt and meeting your other expenses. Remember to make the loan your priority here.

You may also want to set up an automatic payment system so that you never have to deal with late fees.

Repayment Options

As stated before, it’s very important that you choose a repayment option that best suits you. Here’s a look at the ones that you can choose from.

Standard Repayment

Your loan is typically automatically assigned this plan when it’s time for repayment. You need to request a change if you want one. All borrowers are eligible for this plan, and the payment period spans ten years. There are no penalties for early repayment, so feel free to use the opportunity to pay off the loan in the shortest order when you can.

Graduated Repayment

The payments you make under the standard plan tend to have a fixed payment figure. The graduated repayment plan also features a ten year payment period, but it doesn’t have a fixed rate. Instead, the payments start off lower, and they gradually increase. This plan is used by people who intend to pay off their student loans as quickly as possible. If your income is expected to increase over time, this is a perfect selection.

Pay as You Earn Repayment

Your monthly payment is calculated as 10% of your net pay. This 10% is much higher for some people than it is for others, so there is a caveat. The figure cannot exceed the amount that you would pay on the standard plan.

If you’re interested in Public Service Loan Forgiveness or a low monthly payment suits you, then this is the best plan for you.

Extended Repayment

This is the extended version of the standard plan. Instead of ten years, loan repayment can be done over a period of up to 25 years. This means that monthly payments are much lower, but interest is calculated over a longer period. Federal Family Education and Direct Loan recipients are eligible for this option.

The people who typically go for this option have larger loans and need to have lower monthly payments.

Income-Sensitive Repayment

This repayment option is only available to those who are FFEL borrowers. The repayment period here spans 15 years, and the monthly payments are based on what you earn each year.

The only use case for this option is for FFEL borrowers who are not comfortable with the payment figures for standard or graduated plans.

Income-Based Repayment

Based on when you borrowed your loan, your monthly payment can be either 10% or 15% of your net pay. Eligibility is based on what your payment would be under the standard plan versus what it would be under this plan. If your income translates to this plan, resulting in a lower payment, then you are eligible. If your federal student loan debt is either higher than your annual net pay or makes up a significant portion of it, you are likely to make this requirement.

When your debt is high and you need low monthly payments based on a low income, this is the plan you want.

Income-Contingent Repayment

Once you have an eligible loan as a Direct Loan borrower, you qualify for this repayment plan. There are two potential calculations for your monthly payment. Whichever is lower is the one that is paid. The calculations are 20% of your net pay or a payment based on a fixed amount that ends in 12 years.

If you can dedicate more of your income to repaying a loan, but not as much as the standard repayment option, then this plan is for you.

Revised Pay as You Earn Repayment

Once you are a Direct Loan Borrower with an eligible loan, you qualify for this repayment plan. You are required to pay 10% of your net pay towards the loan.

If you need a lower monthly payment and you have no problem with potentially paying more in interest than you would with a standard plan, then this one’s for you.

Pay Away

Paying your student loans requires proper planning and execution. All you need to pull that off is access to the necessary information. Use your grace period to start the planning process, and find out which repayment method suits you. After that, just commit to it, and get your loan paid.

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