How to Pay Back Student Loans

How to Pay Back Student Loans

Student loans can become a debt burden that grows and grows if you do not have a good organization and payment strategy. Whether you have taken out loans or you are just considering getting a loan, you need to consider what options you have to pay back your loans and make smart financial decisions.

First, you need to think about what suits you as a payment strategy. You may need to make your monthly payments lower so that they fit into your monthly budget. Or, you may want to eliminate the debt as soon as possible and find a strategy to pay the loan quickly with larger payments.

Lowering your monthly payments may be a benefit because it makes it easier for you to pay your bills each month without having to incur additional debt or default due to lack of budget.

On the other hand, paying off the student loan faster means shortening the time that you will pay off the debt. Furthermore, you are also reducing the cost of interest you may have to pay over a longer loan term. In this case, the total cost of the debt is reduced, while the monthly payments are higher.

Depending on your financial situation, you should choose one of these two options to eliminate debt.

In addition, other factors to consider are the type of loan you have (such as federal or private), your income level and your monthly budget. When you are clear about your budget, you can make a student loan payment calculation that is right for your current situation.

Continue reading to learn some basic strategies to pay a student loan effectively.

Control Your Finances

Before calculating the payment on your student loan, you must put your finances in order and establish the budget you have. In order to eliminate the debt, you must control your expenses and have a strict budget for each month.

Write all your expenses in one place and evaluate which of them are unnecessary, and then make the decision to eliminate them. There are expenses like electricity or water, which are expenses that cannot be avoided. However, you may be able to reduce the amount of money you spend eating in restaurants and going to the movies, among other optional expenses.

Identifying those habits will allow you to reduce or eliminate them because they are not really necessary. Reduce small and large expenses, keeping in mind that you will be able to pay off debt faster and achieve more financial freedom if you do so.

When you identify what your recurring, basic and necessary expenses are, you must add to this the monthly fee you pay for the student loan to get your monthly budget.

If you are currently in school, remember that studying involves unforeseen expenses, such as books or materials for your career training. Find a way to minimize your investment in such necessary materials. For example, perhaps you do not need the new book, but you could buy it from someone who will no longer use it.

In this way you will learn to save and decrease your spending levels. By doing this you can directly assess your ability to pay the loan month by month.

Find a Payment Plan That Is Appropriate for Your Situation

If despite having reduced all possible expenses, you still have limited cash to pay, the best option is for you to repay a student loan based on your income.

If your loan is federal loan from the government, your repayment can be based on a payment plan depending on your difficulties. You can set a monthly payment plan that adjusts to a percentage of your adjusted gross income (AGI). This payment plan also considers how many people are in your family. Basically, the lower your household income, the less you will have to pay each month.

Most federal student loans allow you to choose at least one kind of income-driven repayment plan. These plans include:

  • Pay as You Earn Repayment Plan (PAYE Plan)
  • Revised Pay as You Earn Repayment Plan (REPAYE Plan)
  • Income-based Repayment Plan (IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)

Each repayment plan will have a different formula to help you repay according to your income. You will pay between 10 to 20 percent of your discretionary income with an income-driven repayment plan.

In some cases, if your income is low and you are actually below the federal poverty limit, you may not be required to make a monthly student loan payment.

Your monthly payment will depend entirely on the financial difficulties you face. You will need to fill out an application in order to qualify for an income-driven repayment plan.


Consolidating or Refinancing Your Student Debt


There are debt relief options through student loan consolidation and refinancing. 

When you consolidate your loans, you place all of your loans into one loan. You may do this through the federal government or a private lender. The interest rate on the new loan will be based on the average of all the consolidated loans’ rates. Consolidation can be a good idea because you only have to make one payment each month, and the amount you pay each month may be 

When you refinance, you replace your student loans with a new loan that pays off your current loan debt. This new loan will have different terms, such as loan length and interest rate, than your old loan.

Refinancing debt to get a lower interest rate may be a good idea. However, keep in mind that when you choose this option, the new monthly rate will depend on your credit score. If your credit is currently much lower than when you applied for your student loan, then your interest rate will not be lower. 

One thing to keep in mind is that it is not a good idea to consolidate or refinance federal student loans with a private lender. Using private loans to cover federal loans is not recommended, as the debt becomes a private debt and the possibility of debt forgiveness and other special benefits of federal student loans are eliminated.

Before acquiring a student loan, it is necessary to make an evaluation of the payment plans that are most appropriate to our financial situation and take into account what are the options in case you cannot pay the loan.

By Admin