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Managing Student Loan Debt to Keep It From Managing You

Personal Finance
male college student sits on a couch at home and uses tablet computer for managing student loan debt

Managing student loan debt has become the norm in our society. So, it's important to learn how to balance student loan debt with long-term goals, such as retirement and homeownership. While student loans might seem like a barrier to these long-term goals, that doesn't have to be the case.

The truth: Borrowers do have options for effectively managing their student debt. Explore your options for dealing with student loans in a way that won't impede you from meeting your other long-term financial goals.

Student Loan Debt: Figure Out the Details

Student loans can seem overwhelming — especially if you're looking at a balance of tens of thousands of dollars or more. You may want to avoid looking at the numbers and terms but doing so won't change anything. That's why the first step in managing student loan debt is to know what you're dealing with.

You'll want to know a few essential details: First, what kind of loans do you have? Are they Federal or private? Not all student loans are created equal, after all. Plus, your eligibility for certain forgiveness programs may be contingent on the types of loans. Private loans have differing terms, determined by the lender, and they tend to have higher interest rates.

You'll also want to know the length of your grace period — how long you have before you have to start making repayments — which depends on the kind of loans you have. In some cases, you may not even have a grace period — either because you consolidated your loans, already used a grace period or forfeited it. For example, a Perkins loan has a nine-month grace period, whereas a Stafford loan has a six-month grace period, according to the Department of Education.

Find out what kind of repayment plan you have, as well as your interest rates. Your best route here is to check your statements or, if necessary, speak directly with the lender. Your specific set of circumstances determines your options, so you need to know all those circumstances before you make your next move.

Consider the Federal Loan Assistance Program

A federal loan assistance program is an option for some student loan borrowers. This program will only benefit you if you have qualifying federal student loans. While there are a few assistance programs to choose from, the two that most people focus on are the income-driven repayment plan and the Public Service Loan Forgiveness Program.

Generally speaking, you qualify for the income-driven repayment plan if your student loan debt is either higher than your discretionary annual income or amounts to a significant portion of your salary, according to the Department of Education. If you work in public service, such as for the government or at a nonprofit, the Public Service Loan Forgiveness program may be a good choice. This federal loan assistance program will forgive the remaining balance on your student loans after you make 120 qualifying payments on your student loans as a part of a qualifying repayment plan (this includes all income-driven repayment plans) while also being employed by a qualifying employer. A qualifying employer includes the government, a 501(c)(3) nonprofit or a nonprofit that is not classified as a 501(c)(3) but provides certain types of qualifying public services.

Consider Refinancing or Consolidation

If you don't qualify for any federal loan assistance programs, your next option could be to either refinance or consolidate your student loans.

  • Refinancing: Refinancing is when you change the payment terms of your student loans to lower interest charges or lower monthly payments, typically done by working with a bank or dedicated lender. Lower interest charges could make sense if you can find a better rate. This means you'll pay less money over time. On the other hand, lower monthly payments could make sense if you need to lower your payments in the near future to free up some money in your budget.
  • Consolidation: A consolidation is when you combine all your loans into one larger loan. This could help make repayment easier to keep track of because you're only making one payment to one lender each month, instead of having to juggle several. If you have private loans or a mix of federal and private loans, you may want to consider a consolidation from a private lender. If you only have federal student loans, there's a Direct Consolidation Loan that allows you to consolidate multiple federal student loans, according to the Department of Education.

Before refinancing or consolidating, consider running the numbers to make sure the interest charges and monthly payments work out in your favor. This may mean you need to shop around with different lenders to compare rates.

Student Loans & Long-Term Financial Goals

Determining what you can do to help ease the burden of student loan repayment can free up some money you can then put toward other goals. For example, if you decide to refinance for lower monthly payments, you'll have extra money in your monthly budget to put toward long-term goals, such as a down payment on a home or your retirement savings. If you decided to go the forgiveness route, you could make a plan based on the fact that you'll no longer have to make payments after the first 120 installments.

Managing student loans while also working to attain long-term financial goals doesn't have to be difficult. By knowing the terms of your loan, exploring your options and then taking the steps that make the most sense for your finances, you can better manage student loans to help you reach your other financial goals.

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