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The Beginner's Guide to Paying Off Student Loans

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Linsay ThomasGuest Blogger
September 09, 2016 · 1.7k Views

Once you’ve graduated from college, you have a world of opportunities available for you to explore. You may want to travel or start a career. However, here’s something that you will need to do first: pay off any student loan debt. The average debt is nearly $30,000 – about the price of a new car. Unfortunately, many people simply forget about their debt and suddenly realize several years down the road that their balance has skyrocketed due to interest and fees. In fact, more than one-third of those with student loan debt are 90 days or more behind on payments.

There are many reasons why this is happening. Most common is the lack of funds. You need a job to earn money and many recent college graduates are having a rough time finding a solid job that can pay the bills. Maybe they don’t know how to pay back their debt because they have several loans or are unsure of their loan servicer.

Whatever the reason, failure to repay debt can negatively affect one’s credit score. In a nutshell: Pay back your student loan debt. Not sure how or where to start? Read this handy guide to help you pay back debt before it gets out of control.


Get Your Loans in Order


Chances are, you have multiple student loans and aren’t aware of them. Don’t simply feign ignorance. Be proactive and stay on top of them. The Federal Student Aid website can help you track down your loans. Next, organize them into an Excel spreadsheet. Use this sheet to keep track of loan amounts, due dates and contact information for each loan servicer. That way, you’ll have this information handy in case you need to call or email with questions. One of the best way to get started is to access this free College Loan Calculator from Microsoft for excel.

 SEE ALSO: 6 Personal Finance Calculators Everyone Should Use


Get Due Dates in Order

Source: elitedaily.com

Your loans will likely be due at various times of the month. Some may even have longer grace periods. In any case, it’s important to pay them back on time in order to avoid rising interest and late fees. Contact each servicer and get repayment information so you can keep on top of everything. You can easily repay your loan by going online and creating a user name and password for each servicer’s account. You can also have the amount automatically debited from your bank account every month. However, this only works if you have regular income, since you don’t want to incur bank fees by overdrawing your account.



Loan Repayment Options

Source: admczone.wordpress.com

If you have a federal loan, there are six different repayment plans you can choose from.

  • Standard Repayment Plan. This is the default repayment plan. With this plan, you get 10 years to repay your debt. This is the shortest time frame possible, so you’ll be paying less interest overall. You can save even more by increasing your monthly payments and therefore decreasing interest.

  • Extended Repayment Plan. You can extend your repayment time to 25 years if you have $30,000 or more in debt. This is a good plan if you have a lot of debt and don’t expect to pay it off in 10 years. You can opt for equal monthly payments or graduated payments, which increase over time.

  • Graduated Repayment Plan. This plan is ideal if you expect your income to be low at first but expect it to increase year over year. Payments increase every two years, and you’ll accumulate more interest over time, since only a minimum amount is being paid at first.

  • Pay As You Earn Plan. If you can prove financial hardship, then you can have your payments limited to 10% of your discretionary income. After 20 years, your loans may be forgiven if they’re not paid off by then. If your loan is forgiven, it’s considered income for tax purposes, so prepare to pay the taxes.

  • Income-Based Repayment Plan. If you’re going through a tough time financially, you can take advantage of this plan. Your minimum payment will be limited to 15% of your discretionary income.

  • Income-Contingent Repayment Plan. No financial hardship is required for this plan. Under this plan, a monthly payment is calculated for you based on your family size and salary. If the loan is not paid off within 25 years, then it is eligible for forgiveness.

What Else Should You Know About Student Loans?

  • Don’t ignore your student loans. If you’re having trouble repaying them, contact your lender and ask for assistance. Your lender might be able to lower your payments or even defer payments for a certain period of time. At least be proactive because you’ll damage your credit score if you refuse to pay them.

  • The longer you pay, the longer you will accrue interest. While it might be nice to have lower payments, you’ll also be paying on the loan for longer.

  • Pay off private loans first, since they often have higher interest rates and offer very little flexibility in terms of repayment.

  • Don’t file for bankruptcy in an attempt to get rid of student loan debt. Student loans are wiped away only in very rare, extreme cases. The odds are against you, and you will likely still be responsible for them even after a bankruptcy filing.

 SEE ALSO: 5 Tips for Paying Off Student Loans


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Linsay Thomas is a seasoned writer and editor who has written thousands of articles about topics such as saving money, healthcare, law, pets and education. She hails from California, where she lives with her husband, two children and a menagerie of pets. When she's not writing, she enjoys sports, breeding chocolate Labs and visiting the beach.

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