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If you’re struggling to pay off your student loans, you’re not alone. According to the Institute for College Access and Success, more than six in ten seniors graduated with student debt in 2019. Graduates of medical or dental schools could easily have up to $ 150,000 in student debt.
Fortunately, if you are in this boat, you have a lot of options. Here are some strategies for managing $ 150,000 student debt.
Refinancing is a way to pay off student loans while saving money each month. Discover Credible to compare student loan refinance rates.
Refinance your student loans
Best for: Borrowers with high interest loans and a good credit rating
Refinancing of student loans means that a new lender pays off your original loans and gives you a new one-time loan. Ideally, you’ll get a better interest rate and better repayment terms, which will save you money over the life of your loan.
The rates and terms you qualify for depend on your income and credit rating. You can refinance federal and private student loans into a new private loan. But if you refinance a federal student loan privately, you lose access to valuable protections, such as student loan cancellation programs and income-based repayment plans.
Here’s an example of how a lower interest rate can save you money:
- Student loan balance: $ 150,000
- Interest rate: 6.8%
- Monthly payment: $ 1,726
- Remaining time: 10 years
- Student loan balance: $ 150,000
- Interest rate: 4.25%
- Monthly payment: $ 1,537
- Remaining time: 10 years
With the refinanced loan, you will save $ 189 per month and $ 22,680 over the life of your loan. You can also reduce your monthly payments by refinancing to a longer repayment term, although you will pay more overall interest this way.
Pay off the loan with the highest interest rate first
Best for: Borrowers with multiple student loans
A popular student debt repayment strategy known as the debt avalanche strategy, is focusing on paying off the loan with the highest interest rate first while making the minimum monthly payment on all of your other loans.
The faster you pay off that loan, the less overall you will spend on interest and the more money you will have in your budget to pay off other loans. You will continue to eliminate the loans with the highest interest rates until they are all paid off.
Add a co-signer
Best for: Borrowers with lower credit scores or little credit history
If you’re having trouble refinancing your loan because of your credit score or a lack of stable income – or if your current loan has a high interest rate – you can ask someone (like a relative) with a better credit history and greater financial stability to co-sign your loan. This way, you can access cheaper interest rates which will save you money. The co-signer must agree to make payments on the loan in the event of default, so make sure everyone involved is comfortable with this arrangement.
Best for: Federal student loan borrowers
Federal student loan borrowers have the option of purchasing a income-based repayment plan. These plans set your monthly loan payments based on your income and family size to help you pay your payments each month.
You can choose from four types of income-based repayment plans:
- Reimbursement plan revised as you earn (REPAYE plan) – Your monthly payments are usually 10% of your discretionary income, and you have 20 to 25 years to repay your loans.
- Pay As You Earn Reimbursement Plan (PAYE Plan) – Your monthly payments are typically 10% of your discretionary income, but never more than what you would pay under the standard repayment plan. Your repayment period is 20 years.
- Income Based Repayment Plan (IBR Plan) – With an IBR plan, your monthly payment depends on the date on which you took out the loan. If you are a new borrower on or after July 1, 2014, your monthly payment is usually 10% of your discretionary income and your repayment term is 20 years. If you are not a new borrower on or after this date, your monthly payment is usually 15% of your discretionary income and your repayment term is 25 years.
- Income-Based Repayment Plan (ICR Plan) – Your monthly payment is the lesser of 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed 12-year repayment term.
Explore student loan forgiveness options
Best for: Federal student loan borrowers working in eligible areas
Student loan exemption programs allow borrowers to stop repaying all or part of their federal student loans after they have made a certain number of payments.
the Public service loan forgiveness program is a popular option for borrowers with direct loans. If you are employed full time by a nonprofit organization or the government, you may be eligible for public service loan forgiveness. This program waives the remaining balance of a federal direct loan after making 120 monthly payments under a qualifying repayment plan.
Monthly payments on $ 150,000 in student loan debt
Your monthly payment depends on your loan amount, the interest rate, and the repayment term. Here are some examples of what you would pay for different loan amounts with varying terms:
You can save money on your monthly student loan payments when you refinance. With Credible you can compare student loan refinance rates from various lenders within minutes.
Other Ways to Pay Off Student Loans
Let’s take a look at some other tips and tricks for paying off your student loans so you can get out of debt faster.
Pay more than the minimum each month
The longer you take to repay your student loans, the more interest you will pay over the life of the loan. If you can invest more money in your student loans each month, beyond the minimum required payment, you will save on interest, which can make it easier to pay off your loans faster. Be sure to ask your student loan manager to make your additional payment each month on your loan principal, not the next month’s payment. The less capital you have left, the less interest you will pay.
Consolidate your student loans
If you have federal loans, you can consolidate them with a direct consolidation loan. This is similar to refinancing private student loans – you combine all of your outstanding federal student loan balances into one loan. Your interest rate will be an average of what you already pay on all of your loans (so you may or may not get a lower rate), and you’ll have a convenient monthly payment. With a direct consolidation loan, you will get up to a loan term of 30 years. Remember that while a longer repayment term will lower your monthly payment, you will also pay more total interest.
Sign up for automatic payments
The last thing you want to do is accidentally forget to make your monthly loan payment. By signing up for an automatic payment program, you’ll never miss a student loan payment (as long as you have enough funds in your account to make the payment) and can avoid late payment fees. Some private lenders offer a low interest rate to borrowers who sign up for automatic payments. If you are a federal direct loan borrower, you will save 0.25% on your interest rate if you sign up for automatic debit payments.
Make bi-weekly student loan repayments
If you make your student loan payments every two weeks instead of monthly, you’ll end up making an extra full payment every year. It might not seem like much, but you will save on interest over the years which can really add up, especially if you have a long repayment term.
Adjust your budget
If your goal is to pay off your student loans as quickly as possible, make room in your budget for additional student loan payments. To create a basic budget, combine all of your monthly expenses (including the minimum payment amounts for a student loan) and subtract that amount from the money you bring home each month.
Once you know how much money you should have left each month, you can decide how much more you want to spend on your student loan repayments. Take that amount and add it to your budget as an ongoing expense so that you get into the habit of making those extra payments each month.
If you are ready to refinance your student loans, visit Credible to compare student loan refinance rates from multiple lenders without affecting your credit.