Life after college can be overwhelming as graduates begin their careers and start to face new challenges such as repaying their student loans. There are different repayment plans one can choose based on the type of student loan(s) one takes. Once you identified the type of loan, whether it is a federal student loan, private student loan, or both, you can begin planning out how you are going to pay off your debt.
If you acquired federal loans there are various repayment options you can choose from. To begin with, if you have multiple student loans, an option would be the Federal Direct Consolidation Loan which can replace making multiple payments and lump your loans into a new one where you can do a single payment each month. According to the Consumer Financial Protection Bureau, an option for those with an extreme amount of student debt can be to extend your repayment for a longer period which will lower your monthly payments but increase the amount of interest you will ultimately end up paying.
You can also use the Department of Education’s calculator to determine your payments if you choose to extend your loan term and lower monthly payments. Lastly, if you have multiple student loans and decide to pay more than the minimum payment on them, apply the payments to the loan with the highest interest rate first as this can save you money in the long run.
For those with private student loans, you may be able to consolidate or refinance, your private student loans at a lower interest rate depending on your credit. You can communicate with your servicer about the options you have and you can also check with your bank to see if they offer similar products. Be very careful about consolidating federal with private loans. You will lose federal loan protections and benefits if you do this.
Another option you may have is releasing your co-signer, which can protect you from surprise defaults. Many lenders advertise that a co-signer may be released from a private student loan after a certain number of consecutive, timely payments and a credit check to determine if you are eligible to repay the loan on your own.
Another helpful tip, regardless of which loan you have, is to see if you can enroll in auto-debit. You are less likely to miss a payment and you may be able to receive a lower interest rate. If you can contribute more than what is required you can pay off your loan faster and end up paying less in interest. For most federal loans and private loans, you can make additional payments without a penalty.
Written by Gabby Contreras, Financial Wellness for College Students Peer Educator, University of Illinois Extension, Fall 2019. Reviewed by Kathy Sweedler, University of Illinois Extension.