Most people resort to student loans in order to pay for their university education. But once they complete their studies, they may face difficulties in paying off the loan. This is why it is important that you have a good plan to repay the loan you have taken. And to this end, we list below six tips that will definitely help you repay your student loan faster and in a less stressful manner.
If you have additional loans together with a student loan, then it might be a good idea to refinance them and combine everything into one single loan. While it will make the budgeting and repayment of debt easier, you can also benefit from a lower interest rate from the new loan. However, do keep in mind that once you refinance a federal student loan, any benefits attached to it will be lost. So, compare the benefits and ensure that it outweighs the benefits you get from a federal loan before you opt for it.
2. Grace Period And Repayment
Almost all personal student loans will offer you a grace period, generally 6 months after graduation, during which you are not obligated to start loan repayments. Only after the grace period is over will you be required to pay the monthly installments. The benefit of the grace period is that you can use the time to look for a job. However, if the loan is unsubsidized, your loan will collect interest during this period. And when you start making payments, you can face difficulties in clearing off the accumulated interest. As such, it is recommended that you pay off the interest during the grace period in case you have taken an unsubsidized loan.
3. Get A Part-Time Job
Lenders only expect you to start repayment after you have graduated from college. However, this does not mean that you wait for two or three years. If you can get a part-time job and make some extra money even as you study, you should do it and use the earnings towards the repayment of your student loan. If you follow this process, then you will have less debt to deal with when you graduate and start working full time. You will also be able to pay off the student loan a lot faster.
4. Income-Based Repayment Plans
In case you become eligible for federal student loans, you can use the income-based payment plan offered by them. As the name suggests, the plan will limit your monthly repayment to 10% or 20% of your earnings. So, if you make about $2000 per month, then the plan will charge about $200 or $400 per month as repayment for the student loan. For people looking for a repayment plan which is in harmony with what they earn, this is the best option. However, there is a big downside – the payment term is longer. In fact, the payments can stretch up to 20 to 25 years. As a result, you will end up paying a lot more in interest than a regular payment plan. And even though the remaining loan balance is likely to be forgiven after 20 or 25 years, you will still be required to pay taxes on the balance amount.
Student loans allow borrowers to defer their payments for up to three years. There are also provisions that will enable you to postpone repayments for up to a year in some special cases, say the loss of employment. While these might look useful, you need to be very careful if you decide to use them. In case you have taken unsubsidized loans, the interest will accrue for the entire duration of non-repayment. So, if you have deferred payment for 10 months because of losing your job, you will be expected to pay the interest for these 10 months from the 11th month onwards. And as you can expect, this can become too difficult to handle. In fact, you might find yourself always behind the payment schedule. So, remember to at least pay the interest in case you opt for deferment.
6. Employer Payments
In some rare situations, you may come across employers who will offer to pay a certain portion of your student loan in advance. And in exchange, you will have to sign up a long-term employment contract with them. On the positive side, lump-sum repayment will reduce your student debt. Plus, the interest on further payments may also be lowered. But on the downside, you will be stuck with the employer for a long time, as dictated by the contract. However, if you already like the employer and wish to work with them in the long term, this is an excellent solution.