Student Loan Repayment – What’s The Best Plan?

When it comes to student loan debt, there are many options available to help you with student loan repayment. It’s imperative that you do your research and understand your options before you make a decision on the best student loan debt management plan.

Federal vs. Private Loans

You’ll first need to know if your student loan is a federal loan or a private loan in order to figure out your repayment options. You can easily determine if you have a federal loan by visiting the National Student Loan Data System website, the U.S. Department of Education’s central database for student aid. This is a good resource to help you understand the differences between a federal loan and a private loan. 

If you do have a federal loan, you may have more flexibility when it comes to repayment options like deferment, forbearance, or altering your payment plan to extend the repayment terms (and lessen your monthly payment obligation). 

Another good resource for repayment information is the Federal Student Aid website. Some payment plan options for a federal loan are:

  • Extended plan
  • Graduated plan
  • Income-driven plan
  • Income-sensitive repayment plan

If you have a private student loan, Bankrate has compiled some recommendations as to how you can approach your private lender regarding student loan relief. Every private lender is different, so the best way to find out about your available options is to contact your private loan servicer directly. Don’t be afraid to ask questions about assistance programs, lower interest rates and temporary payment suspensions – your loan servicer may offer a solution specific to your needs.

Loan Refinancing

If you’re considering a refinance, you should first determine if you’ll see great enough benefit to warrant refinancing. If your goal is to lower your interest rate and lower your monthly payment, student loan refinancing may be your best option. It’s important to assess all your loans and review the terms and repayment options specific to each. 

If you aren’t sure what the terms are, reach out to each student loan servicer and they’ll be able to share that information with you. This information is key when choosing an option that works best for your current financial situation. 

Some benefits to refinancing can include: 

  • Reducing your interest rate
  • Modifying your monthly payment to better fit your budget
  • The ability to release a cosigner (if you have a cosigner on the original loan)

You can also use a student loan budget calculator to see how different interest rates will affect your monthly payment and payment terms. 

Student Loan Consolidation

The Federal Student Aid website also provides detailed information regarding student loan consolidation. This strategy can simplify your payments and provide you with repayment and forgiveness options, but this may result in the loss of some of the benefits you have with your original loans. The main benefit of student loan debt consolidation is to organize all your separate student loans (which likely have different interest rates and monthly payments) into a single student loan with one interest rate and monthly payment. Though this makes it easier to manage, it is unlikely to save you money. 

There are no prepayment penalties on student loans, so you’re free to make extra payments or pay them off in full without paying a fee or other penalties. However, it’s difficult to stick to a plan if it is optional. That’s why many individuals opt to create a student loan repayment plan to help manage and reduce student loan debt load. 

With so many student loan repayment options out there, it’s best to do your research and weigh the pros and cons relative to your specific situation. Student loan repayment can be daunting, so do take advantage of financial coaching or financial counselors, which you may have access to through a financial wellness benefit program like FinFit.

Once you develop your student loan repayment plan, you’ll have taken another step on your journey towards financial freedom.    

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