I finished my graduate work 10 years ago, and I'm still paying my student loans. I know I'm not alone—it comes up now and then when I'm out with my old classmates—but it's still something I budget for, every month. Even so, I'm fortunate that my payments are manageable. Others aren't so lucky. According to the New York Federal Reserve, 37 percent of borrowers have experienced some level of difficulty with repaying student loans.*
Whether you're trying to reduce your monthly payments, pay off your loans faster, or save money over the life of your loan, there are programs that can help. Check out the beta site from Fidelity Labs!
Federal Repayment Programs
If you have federal loans, the government offers a variety of loan repayment options. I chose consolidation when I finished my schooling. Interest rates were low, and I found it easier to manage my payments with all of my federal student debt combined into a single loan. If you're having trouble making your monthly payments, consider one of the income-based programs, such as 'Income Driven Repayment', or 'Pay As You Earn'. These programs allow you to adjust your repayment terms depending on your income situation. The government also has loan forgiveness programs for certain employees of non-profit, public sector, or teaching jobs—which could eliminate a significant amount of your loan debt, if you qualify.
If you think you may be eligible for a federal repayment or forgiveness plan, look into it right away, as some programs require you to file paperwork annually.
Student Loan Refinancing
Refinancing works similarly to consolidation in that you replace multiple loans with a single loan. The biggest advantage to refinancing is that you have the chance to reduce your interest rate. You'll have to apply directly with a refinancer, and they'll look at your credit, annual income, and other factors to determine the rate they offer you. If you qualify, you could save significant money over the life of your loan, and you might even be able to shave years off your term or reduce your monthly payments.
You can refinance private or federal loans, but it is important to know that if you refinance your federal loans, you'll lose eligibility from any federal repayment or forgiveness programs.
If You're Still In School
Even if you're a full time student, your loans may be accruing interest. This is most likely the case if you have private loans, or federal unsubsidized loans. Letting the interest build means you'll end up owing interest on your interest, which will cost you more in the long run. If you can swing it, start building the habit of making small payments while you're in school, so your interest doesn't accumulate.
Know What You're Getting Into
Before you make your move, do your homework. Quite often, choosing a federal or private repayment option that lets you lower your monthly payment means you're extending the term of your loan. This may provide relief on your monthly bills now, but a longer payment schedule could increase the total cost of the loan. A shorter-term loan will take a bigger bite out of your cash flow, but save money over the long term.
Your student loan debt is part of your overall financial picture and can impact your short- and long-term goals. I'm now preparing to purchase my first home, so I'm laying out how to manage my existing loans with the mortgage I'm about to take on. Knowing where that debt fits and what tradeoffs make sense for my situation has been key to developing a financial plan that is manageable.
If you need help running the numbers to see what works best for you, consider reaching out to the financial counselor at the college you went to. Even if you graduated 10 years ago, they're still there to help their alumni. You can also look to trusted sources online to help you decide if a federal repayment program, private refinancing—or a combination of strategies—is best for your situation.
Take the Next Step
Looking for more specific information and guidance on repayment options that are best for you? Check out the beta site from Fidelity Labs!