Student loans make it possible for people from various financial backgrounds to take advantage of higher education; however, they can also be quite the burden. This is particularly true when you are just starting your career. Because of this, knowing how to reduce your student loan payments will be important, regardless of whether or not you are a recent college grad.
How to Reduce Your Student Loan Payments
Refinancing and consolidating the debts accumulated from your student loans will not only lower your monthly payments but also save you thousands over the course of repayment. When you first graduate from college, you are granted a grace period of typically six months before you have to start paying back on your loans. Unfortunately, many tend to continue to put these loans on the bottom of their to-do lists instead of focusing on them right away. By doing so, you set yourself up for future financial heartache.
When you neglect to pay on your loan, it becomes delinquent. After nine months without paying, it goes into default, hurting your credit and future loan opportunities. In fact, when you don’t pay on your federal loans, they will garnish your wages and take your tax refunds to collect what is due to them, as stated in this 2015 Business Insider article by Matthew Speiser. Imagine explaining that one to your boss…
Luckily, many financial institutions will allow you to refinance your loans for a lower interest rate, especially if you have a great track record. But, before you even start down this path, you need to know and understand the different loan options and what your company can offer you.
You’ll want to ask yourself a few questions as advised from Student Loan Hero as you start to refinance your loans.
- What are my goals? What are your goals to refinancing? Is it to reduce your monthly rate, eliminate the debt as quickly as possible, or to achieve lower interest rates? Know which of these will be most beneficial to you when considering loan options. Student Loan Hero provides a handy student loan refinance calculator you can even use to weigh out what options will be best for you.
- What options do I have for interest rates? Refinancing your existing student loans means you essentially replace these with a new loan. Thus, this gives you the opportunity to get a lower interest rate, Student Loan Hero writer Elyssa Kirkham explains. Determine your current rates and use this to compare with new ones. Kirkham adds that you can expect federal student loan rates to range from 4% to more than 7% while private student loans will typically range from 9% to 12% or more, but you might luck out and find rates as low as 2%.
- Will I need a cosigner? As with any loan, if your credit score is poor or non-existent, you may be required to have a cosigner.
When considering refinancing options, think about how much you owe, how long it will take you to repay your loans and your current job situation. Do you feel stable in your current position? If your debt is nearly gone, refinancing may not be a benefit to you. Additionally, make sure to compare rates you find online with local lending companies, such as a credit union or bank.
Also keep in mind that while you can refinance both federal and private student loans together through a private lender, it may not be the best option. Learn more about why from LendKey here.
As you research more how to reduce your student loan payments, you’ll likely see loan consolidation options. This is another way to lower your monthly payments and debt. What happens when you consolidate your student debt is that you are taking your loans and combining them into one larger loan with a fixed interest rate. Usually, you won’t have to worry about any consolidation fees. This process allows you to pay one monthly fee instead of different payments with different interest rates. But, loans can only be consolidated under the same borrower; multiple borrowers cannot consolidate their loans together.
It is important to note that you cannot consolidate loans while you are in still in school. Not to mention, you want to make sure you weigh out the costs of consolidating compared to you your current rates and payments. Don’t be afraid to ask as many questions as possible to the companies you are considering working with for your consolidation.
If interested in learning more about debt consolidation, check out one of our recent articles on how to consolidate your loans.
Loan Forgiveness Programs
Loan forgiveness programs exist to help those employed in public service jobs. These include teaching, medicine, law, the military, and some volunteer positions. Through these programs, a few thousand to more than $100,000 worth of student loan debt may be eliminated. Check within your industry to see what is available and where you can apply.
Before making any changes to your current student loans, though, make sure to revisit your original loan terms. You may have borrower benefits you could lose if you switch to one of the above options.
Once you know how to reduce your student loan payments, living a debt-free life does not seem as unattainable. Hopefully, these student loan tips can help you, no matter how long ago you graduated.
Have you tried one of the above for your student debt? What was your experience?