Student Loan Repayment Guide
Graduates with student loan debt have a number of options when it comes to repaying student loans - and not all of these options are suitable for everyone. It is important to understand how your choice of repayment options will impact your future.
Whether you choose to refinance and pursue more favorable terms for interest and monthly payments, or look into alternatives to refinancing, such as income-driven repayment or student loan forgiveness plans, it is important to choose a strategy that will suit your specific situation.
Here are some common student loan repayment options based on specific types of borrowers, the type of loans they’ve taken out, their financial status and their profession.
Private Loans
Aside from refinancing or consolidation, private student loans don’t offer many choices.
Forgiveness programs for private student loans formally don’t exist. Complete discharge of private loans is rare, even in cases of long-term disability. Unlike federal student loans, private loans aren’t eligible for IDR (Income-Driven Repayment) programs. Even if you request forbearance from your lender, you might still be obligated to pay interest and fees.
You could also request lower payments from your lender. (The Consumer Financial Protection Bureau offers a sample letter.) Some private lenders offer temporary deferments for graduates in certain professions, such as the military, health care or public service.
Ask your lender about any programs or options that might ease your debt burden.
Recommended Option: Refinancing
Recent Graduates
Option 1: Income-Based Repayment Plans
Recent graduates may want to pay particular attention to the PAYE and IBR programs. Both require the borrower to have high debt relative to income, a situation that may be more common for people just starting out in the workforce.
Option 2: Refinancing
In general, recent graduates may not benefit as much from refinancing as those who’ve established themselves in the workforce. When you’ve been earning a steady salary for a while, you’ve had more opportunity to pay down your student loan debt, receive raises, and improve your overall debt-to-income ratio (DTI). Those factors can make you a more attractive candidate for lenders.
Federal student loan borrowers interested in refinancing should consider the risks and rewards. By refinancing your federal loan, you could forfeit the right to take advantage of government protections such as income-driven repayment (IDR) and loan forgiveness programs. Always weigh the pros and cons of saving money with a refinanced interest rate.
Experienced Employees
Option 1: Income-Driven Repayment Plans
Those who have established careers may want to consider the SAVE (formerly REPAYE) program in particular to address their remaining student loan debt. Having a higher income level won’t disqualify you. Some borrowers may qualify for complete loan forgiveness after as few as 10 years.
Option 2: Refinancing
Those who’ve established themselves in the workforce are more likely to benefit from refinancing than recent graduates. When you’ve been earning a steady salary for a while, you’ve had more opportunity to pay down your student loan debt, receive raises, and improve your overall debt-to-income ratio (DTI). Those factors can make you a more attractive candidate for lenders.
However, remember that by refinancing your federal loan, you could forfeit the right to take advantage of government protections such as income-driven repayment (IDR) and loan forgiveness programs. In that light, take care to weigh the pros and cons of saving money with a refinanced interest rate.
Military/Public Service
Option 1: Public Service Loan Forgiveness
Members of the armed forces may be eligible for repayment programs exclusive to the military. Others employed full-time by government agencies, including the military, or nonprofit organizations may qualify to have the balance of their loans forgiven under the Public Service Loan Forgiveness (PSLF) program.
Option 2: Income-Driven Repayment
Government/military and nonprofit employees who have made 120 payments under any Income-Driven Repayment (IDR) plan may qualify for PSLF.
Option 3: Refinancing
As mentioned above, be sure to carefully weigh the pros and cons of refinancing to save money on interest.
Student loans can be a valuable tool for paying for some of your student's college costs, but you want to make sure you aren't taking on more debt than you should, and that you strategize wisely when it comes to your repayment options.
If you have questions on student loans, financial aid, or college planning of any kind, please reach out to our office to request a free college planning strategy session with a qualified college planning professional!
Disclaimer:
The information presented here is for educational purposes only and is not a solicitation for the purchase of any financial product. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting financial professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.