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How to Make Your Student Loans More Manageable

How to Make Your Student Loans More Manageable
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It’s no secret young adults are struggling with crippling student loan debt. We go to college with high hopes and graduate to a rude awakening.

In 2015, the average borrower graduated with over $35,000 of student loan debt, though some struggle to make that much in one year.

Back in August, WSJ reported that nearly 7 million student loan borrowers are in default.

It’s clear that many borrowers are struggling to figure out how to make student loans more manageable. If you’re in that boat, taking the actions below will help ease the pain.

Federal Student Loans: Graduated and Extended Repayment Plans

One of the many benefits of having federal student loans over private loans is that you have a variety of repayment plans to choose from. Unfortunately, a lot of borrowers don’t take advantage of them because they aren’t aware that they exist.

Let’s start with the basics. You’re most likely under the standard repayment plan of 10 years if you have a Direct Loan.

The closest alternative to that is the Graduated Repayment Plan. It has a repayment period of 10 years and a lower monthly payment in the beginning, which increases every two years. This is a good option for graduates who need some time to build up their earnings.

A similar repayment plan is the Extended Repayment Plan, which lengthens your repayment period to 25 years. You can choose to pay a fixed or graduated amount.

You don’t have to meet any special requirements to qualify for these plans, making them easy options to switch to if you choose.

Federal Student Loans: Income-Driven Repayment Plans

That doesn’t apply to Income-Driven Repayment Plans, though. As the name suggests, your ability to qualify for these plans is usually based on your income. If your level of income pales in comparison to your minimum student loan payment, there’s a good chance you’ll qualify.

There are four plans you can apply for:

  • Revised Pay As You Earn (for all borrowers with eligible student loans)
  • Pay As You Earn (for newer borrowers)
  • Income-Based Repayment Plan
  • Income-Contingent Repayment Plan

To find out more information on each, you can click the link above which will lead you to the U.S. Department of Education website. Eligibility, repayment details, and more can be found there.

How can you apply for a different repayment plan? You can either fill out the form or talk to your student loan servicer about your options.

I also want to point you in the direction of the Repayment Estimator, found on the same website. If you log in with your FSA ID (you can recover the information if you don’t remember it), you can see which repayment plans you qualify for.

Beware of Longer Repayment Terms

Many of the Income-Driven Repayment Plans extend your repayment period to 20 or 25 years. If there’s an outstanding balance on your loan after the repayment period is over, the balance is forgiven. However, you’ll owe taxes on that amount.

Additionally, while having a longer repayment term may give you a lower monthly payment, realize it’s a trade-off: you get an affordable payment now and pay more in interest over the life of your loan.

The same applies to the Extended Repayment Plan. The more years you spend (literally) paying back your loan, the more expensive it gets. I would strongly suggest making extra payments whenever you’re able to do so, as paying off your loan early will save you money.

Forbearance and Deferment

These options are typically exclusive to federal student loan borrowers, although some private lenders offer forbearance during difficult times. When your loans enter into forbearance or deferment, no payments are required.

What’s the difference? Deferment is the better option of the two because interest doesn’t accrue on your Direct Subsidized and Federal Perkins Loans (but does on unsubsidized loans) while payments are halted. When loans are in forbearance, they continue to accrue interest.

You must request forbearance or deferment from your student loan servicer. You should be able to do that on your account online, or you can call and request it. Here are the details on who qualifies for deferment and forbearance.

Direct Consolidation Loan

If your student loans are unmanageable right now because you have multiple loans with multiple loan servicers, consolidating these loans can help. Simplifying your payments can make your life easier as you won’t have to keep track of six different due dates or payments.

The Direct Consolidation Loan is an option that’s available only for Federal student loans, but it doesn’t exactly have the same benefits as refinancing your loans. Your interest rate won’t decrease because the weighted average of the student loans you consolidate are rounded up to the nearest 1/8th of 1 percent.

You can apply for free online; the application should only take around 30 minutes to complete. There is one catch, though – in some cases, you might lose benefits that Federal student loan borrowers have access to. This usually applies to special circumstances (such as if you’re in the military), but you can always call the Loan Consolidation Information Center at 1-800-557-7392 if you have any questions.

Have Private Student Loans? Think About Refinancing

Those with private student loans are probably thinking they’re out of luck, but thankfully, that’s not true. You have a few options.

First, it’s always worth calling up your lender and asking if they can do anything for you. Perhaps they can extend your repayment period or figure out another way to provide you with a lower monthly payment.

If that doesn’t work, there are plenty of private companies willing to refinance your student loans. Those with very high interest rates tend to benefit from this the most, but if you have multiple federal and private student loans, refinancing can help simplify your payments as you can often refinance both together.

SoFi allows you to refinance both, and has variable APRs as low as 1.90%, with fixed APRs as low as 3.50%. If you have great credit, it’s worth a shot. Applying with some private lenders (like SoFi) won’t harm your credit, either, as most allow you to apply for a quote by using a soft credit pull. If you want to move forward with the loan, a hard pull will be used.

SoFi and many other online lenders offer unique benefits as well, such as unemployment protection and forbearance.

Refinancing can lower your interest rate, saving you thousands of dollars, and some private lenders will refinance your loan to a 20 year term. If you go this route, shop around for the best rates!

Stay On Top of Your Payments

As you can see, there are many ways to make your student loans more manageable, whether you have federal or private loans. No matter what, you should try and stay on top of your payments as much as possible. If you’re in danger of missing a payment because you can’t afford it, get on the phone with your lender and explain the situation to them.

They’ll be much more willing to help you now than if you’re 30 days past due (or worse). Defaulting on your student loans is the #1 thing you want to avoid.
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If you weren’t aware these options existed before, hopefully this allows you to take action on lessening your student loan burden. In the meantime, keep working on cutting expenses andtrying to earn more to make room for your payments.

Written by Erin Maxwell