The Basics You Absolutely Must Know About Repaying Your Student Loans

Did you make a resolution this year to get your finances under control and your student loans paid off? According to an article published on WSJ.com, the class of 2015 have an average of $35,000 worth of student loans. We hope you don’t owe that much but regardless of how much you owe you’ve decided you want to be part of that 32% who have said that paying off their debt is their most important goal for 2016. Here are eight things you absolutely need to know to about repaying your student loan debts.

1. There may be better federal repayment options

When you graduated from school, you were automatically put into the traditional 10-year repayment program. This means you have a fixed interest rate and 10 years to repay the money. If you find that monthly payment is a bit on the onerous side and if some or all of your debt was federally guaranteed you might consider moving to an income-driven repayment plan. The most popular of these, Pay You Earn, was just modified by Pres. Obama and is now called the Revised Pay As You Earn Repayment Plan (REPAYE Plan). Choose this plan and your payment would be capped at 10% of your discretionary income. This could be a particularly good option if you don’t have much discretionary income.

2. Understand that organization is critical

Do you have several loans with different loan servicers? Then the first thing you should do is sit down and make a list of who you owe, the monthly payment required, its due date and the name of the website you will go to to make your payments. If you are not completely sure as to who you owe, then go to the National Student Loan Database at nslds.ed.gov where you will find a complete list of all your federally-guaranteed loans. This includes both direct loans from the federal government and any guaranteed student loans from private lenders (through June 2010). This database will also provide contact information for your loans’ servicers. (Note: to login to the site you will need an FSA ID. If you don’t have one, you’ll need to create one. When you have an FSA ID you’ll then be able to log into nslds.ed.gov).

3. If you have private student loans you can still get relief

The alternative repayment plans mentioned earlier are only for loans that are federally guaranteed. If you’re having a tough time making your payments on loans from a private servicer like Discover or Citizens Bank you might call your servicer to see if it would provide any kind of relief. Banks like Discover and Wells Fargo are now providing loan modifications to stressed-out borrowers. In some cases, the lender might even agree to waive your payments temporarily to help you get back on your feet.

4. See about refinancing to get better terms

If you have a good credit record you might be able to do a refi and get better terms. Startup lender such as SoFi, Earnest and CommonBond are now offering student loans at very low-interest rates to people that have excellent credit ratings. If you could qualify for one of these loans at a better interest rate than what you’re currently paying you could use the money to pay off your student loans. The critical word here is “excellent” as you must have a high income and a very good credit history. If you could qualify for one of these loans the upside is pretty terrific as these companies say they could help you save thousands of dollars over the life of their loans.

5. Put your payments on automatic debit

If you’ve made your life easier by putting bills like your utilities and insurance premiums on auto-debit or set it and forget it, you could do the same with your student loan payments. There are lenders that offer as much as a .25% reduction in their interest rates when you put your monthly payments on autopilot. Of course, if you’re on a really tight budget you might not want to do this as this would risk overdrawing your account.

6. Watch out for those student loan scams

Unfortunately, there are a number of con artists out there just waiting to take advantage of desperate debtors. These scam artists create websites that look as if they were part of the Department of Education and advertise “student debt settlement” or “student debt forgiveness.” All they ask in return for all their “help” is a big upfront fee and monthly payments every month thereafter. If you get a phone call from one of these scamsters that try to pressure you into signing up for a repayment plan, hang up and run away. Companies like SoFi, CommonBond and Earnest are perfectly legitimate and represent sound ways to repay your student loans. One of the things that separate them from the fraudsters is that they will never contact you. If you want their help you will have to contact them.

7. The interest rate on your loan may not go up even though the Fed just raised interest rates

While the Fed recently decided to increase the prime rate this doesn’t necessarily mean the interest rate on your student loans will go up. If your loans have fixed interest rates, that is if you borrowed from the federal government after July 1, 2006, or if you have a fixed-rate private loan with a locked-in interest rate then the Fed’s decision will not affect you. Your rate will remain the same. Of course, if you have a variable-rate loan you will probably see your rate begin to fluctuate.

8. Remember there is life after debt

Probably the biggest thing to keep in mind as you go about making your loan payments is that your life isn’t over because of your debt. We know of people who borrowed more than $50,000 or more just for an undergraduate degree and have absolutely no remorse about it. Living with student debt can be stressful and it can be maddening to see hundreds of dollars fly out of your checking account every month when what you’d rather be doing is saving the money for a car, house or even a family. But when you make those monthly payments this can help you learn to budget and live below your means. If you make all of your payments on time every month this will also help you build a good credit history. And last but not least always remember that if you have student debt it’s because you got an education – and that education will benefit you throughout your entire lifetime.