The burden of student loans is getting heavier and heavier as the years pass. It’s a harsh reality that many people face long-term, which can affect financial wellness. This is why developing a plan to manage your student loans is essential to help ease the weight of all that stress and responsibility. In your planning, know that your credit score can be starring in determining your options; a higher score means more options.  

Determining Your Total Debt

Ignoring your debt can expose you to additional fees and penalties, which can further lower your credit score. Firstly, take a moment to be aware of exactly how much you owe. Students usually graduate with several loans, which can be either private or federally sponsored. Knowing your total debt can help you develop a plan to pay it down, receive forgiveness, or even consolidate it. Just be aware of your options and what your plan of action is.

Understanding the Terms of Payment

Review the different repayment policies and interest rates for each loan as you go over and sum up your student loan debt. Knowing this critical information will help you avoid accruing additional penalties in the form of hidden fees or interest.

Look At Grace Periods

After gathering all the details, you will notice that every loan has a grace period. This is the period after you graduate before you must repay your loan. The grace period will vary according to the type of loan. For instance, Stafford loans have a six-month grace period, while Perkins loans offer nine months before payment.

Review Possible Refinancing & Consolidation Options

If you have several school loans, you may want to consider consolidating them into a single loan with one monthly payment. This could reduce the burden of your monthly payments and may even extend your repayment period. However, the interest rate on the consolidated loan may be higher than what you are currently paying. Before consolidating, compare loan terms and understand the new interest rate and any associated costs. Additionally, consolidating your loans may mean forfeiting your right to deferment options and income-based repayment plans attached to some federal loans. 

Alternatively, you can try to refinance your loan at a lower interest rate. Refinancing your student loans can be a great way to save money or lower your monthly payments. With refinancing, you take out a new loan with a different lender to pay off your existing debt and have a new interest rate and repayment term. 

Private student loans cannot be consolidated with federal student loans since they are not eligible for the lower interest rates that come with federal consolidation loans. A private consolidation loan may be beneficial if your credit score has improved since you first obtained the loan, as the interest rate could be lower. However, you should consider the loan terms carefully before applying, such as whether the interest rate is fixed or variable, fees or prepayment penalties, and any other potential costs associated with the loan. To emphasize, refinancing only works with private student loans.  

Be aware that if you can refinance federal student loans to private, you may lose some benefits, such as eligibility for forgiveness programs. Therefore, it is vital that you carefully consider your current loans before making any decisions that could affect your eligibility for loan forgiveness. Federal student loans should be consolidated independently, as they will offer superior benefits and lower interest rates for consolidating.

Consolidating your federal student loans with a direct consolidation loan will keep all your federal benefits but averages your interest rates and rounds up to the nearest one-eighth percent. 

Try using a student loan, the Forbes’ refinance calculator, to help you determine the best option.

Choose a Payment that Works for You

If you have federal student loans, you may be able to select a more cost-effective repayment plan. Some plans extend the loan term beyond the standard 10-year period, while others let you make smaller payments initially and larger payments later, which could be beneficial if you're starting in the workforce. Consider the best plan for your current budget and your financial future. 

If you're considering loan forgiveness, make sure you select one of the income-driven repayment plans accepted in the program. 

If you're having financial difficulty, such as losing your job, you may qualify for deferment, which means you don't have to make payments for a certain period. Generally, no interest will accumulate during deferment.

Defer Payments and Consider Forbearance

An option to consider may be to request forbearance, similar to deferment, except that interest usually continues to be added to your loan. Student loan forbearance is a temporary relief from paying your student loan, usually for twelve months or less, during financial difficulty. It is not as beneficial as deferment, in which you may not be liable for interest that accrues during the deferment period for certain loans. When the period of forbearance is over, the accumulated interest must be paid. 

For federal student loans, you may be able to obtain a deferment that suspends any interest charges during the deferment period. If you are not eligible for deferment, you could ask for a forbearance, allowing you to pause payments for a particular time. Any interest accrued will be added to the loan principal during this period. If you are not currently employed, you may be able to request that your student loan lender defer payments. 

For federal student loans, forbearance typically lasts one year and can be renewed for up to three years. The amount and conditions of the forbearance are usually regulated by law. Private student loan forbearance is usually offered for twelve months and cannot be renewed. The lender decides the amount of forbearance and conditions.

Depending on the lender, private student loans may or may not have a deferment or forbearance option, so contact your loan servicer as soon as you can to explore your options.

Review Special Payment Programs

Stay informed about the potential for federal loan forgiveness; exploring any non-profit organizations or government entities that offer debt relief programs for student loans may be beneficial. You may be eligible for debt forgiveness if the school you attended closed before finishing your degree, you became disabled, or paying the debt will lead you to bankruptcy. Additionally, investigate if your employer provides any student loan forgiveness benefits. Carefully read each program's requirements to ensure you are eligible to participate.

Strategies to Pay Off Your Debt

It is always advisable to first pay off loans with the highest interest rates. A practical way to do this is to allocate an extra amount to the loan with the highest interest rate in addition to the regular monthly payment. Once this loan is cleared, apply the regular monthly payment plus the extra amount to the loan with the next highest interest rate, and so on, until all loans are paid off. 

Whenever possible, pay extra towards the principal of your loan. This will reduce the principal faster, leading to less interest paid over the loan's lifetime since interest is based on the principal monthly.

If you set up your student loan payments to be automatically taken out of your checking account each month, some private and federal loan lenders will discount your interest rate. For instance, 0.25% is taken off Federal Direct Loan Program participants' interest rate.

Alternative Methods to Pay Off Debt

If you have a federal student loan, you may be able to contact your loan servicer to discuss alternative repayment plans such as graduated repayment, extended repayment, income-contingent repayment, or pay-as-you-earn strategies. Graduated repayment increases your monthly payments every two years over the 10-year life of the loan, extended repayment allows you to stretch out your loan over a more extended period, income-contingent repayment calculates payments based on your adjusted gross income, and pay as you earn caps monthly payments at 10% of your monthly income for up to 20 years. However, these plans may mean paying more interest over a longer time, and none of these options are available for private student loans.

Prioritize Paying Off Your Debt

You must pay the minimum on all your student debts, as not doing so can negatively influence your credit profile. Not paying your student loans is the same as defaulting on any other loan and will lead to it being sent to a collection agency, appearing on your credit report, and ultimately damaging your credit score. This will make it more challenging to borrow money in the future, such as for a car loan or a mortgage. Further, the government can garnish your wages or withhold your tax refunds if federal student loans are not paid off. Ultimately, it is up to you to decide how to manage your student loans in a way that does not adversely affect your future financial situation, such as putting extra money toward getting your employer's retirement match or chipping away at credit card debt. It’s essential to learn how to budget to maximize the most out of your finances properly. 

Look at Budgeting 101 Tips and Tricks for further details on creating a budget that works for you!