Repaying Student Loans

Stressed about your student loans or wondering if you’re on the right track to pay them? You’re not alone and you have options.

According to the nonprofit organization American Student Assistance, about 20 million people attend college annually and 12 million of them borrow to cover the expense of their higher education. Tack these numbers onto the existing 37 million who carry outstanding student loans.

Whether about to pay off your loans or continuing to pay, here are your options and considerations. These options apply to federal student loans. Each program features its own guidelines and requirements or minimums you need to meet.

Standard repayment plan: You pay a fixed amount per month for up to 10 years. Under this option, you pay the least amount of interest.

Graduated repayment plan: Your payments are lower to start and increase every few years for up to 10 years. You pay more interest in this option than in the standard plan.

Affordability. The above are good options if your income is reasonable in relation to your loan balance. The following options aim to make your payments easier to make.

Extended repayment plan: This allows smaller fixed or graduated payments enabling you to pay off your loan in up to 25 years.

Pay As You Earn: This plan went into effect in December 2012 to help new graduates entering a tough job market. If you qualify, this program caps monthly loan payments at 10% of your discretionary income. Pay/Earn does stretch the amount of your payback time and may increase the overall interest you pay.

Income-based repayment (IBR): Payment caps depend on how much money you make and the size of your household and max out at 15% of your discretionary income. In some cases, remaining unpaid IBR balances are forgiven after 25 years.

Public Service Loan Forgiveness (PSLF): If you’re a public-sector employee with federal student loans, you can use PSLF to make qualifying loan payments for 10 years, after which your remaining balances are forgiven.

Strategies. You may find it tough to juggle day-to-day expenses along with bills and your savings goals but smart, creative moves help make the most of your money to pay loans off faster:

Get qualified: Do research to figure out which above options you qualify for based on your loan balances and income.

Tackle and pay off the loans by interest rate: Start with the loan carrying the highest interest rate and go from there. The higher the interest rate, the more the loan likely costs you.

Prioritize spending: Go back to the basics with budgeting and focus on living expenses, savings and debt repayment. You might need to cut some fun things for a while to put your money where it matters.

Establish a side income: Examples include contracting your services, consulting or selling your artwork online. Putting extra earnings each month toward your debt helps you save money you pay in interest.

Dealing with student loans is no fun; understand how to handle and how to pay it off as quickly as possible. The above programs change at any time and you must track your loans and any repayment program you enroll in.

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Mary Beth Storjohann, CFP, is the founder of Workable Wealth, an RIA in San Diego. She is a writer, speaker and financial coach who is passionate about working with individuals and couples in their 20s and 30s to help them organize and gain confidence in their financial lives. She has been quoted or featured in various industry publications on the local and national level. You can find her on Twitter at @marybstorj.

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