Navigating Student Loan Repayments: From a Financial Advisor
Federal student loan payments resumed in October 2023 after a pause lasting more than three years. However, nearly half of borrowers—49%, according to a survey by Intelligent.com—are uncertain about their ability to manage these payments. If you’re among those feeling the financial strain, here are some steps to explore:
1. Check for Student Loan Assistance Opportunities
Many employers are now including student loan repayment assistance in their benefits packages. This support can help reduce your debt significantly.
Contact your HR department to check if this benefit is available. Also, consider it when looking for jobs. Compare the aid offered when considering job offers, as it could make a notable difference in your financial plan.
If you work for a government entity or a qualifying nonprofit, you might be eligible for Public Service Loan Forgiveness (PSLF). The PSLF program is different from the larger forgiveness program that the Supreme Court recently rejected. It needs 120 qualifying payments and is for public service workers.
2. Adjust Your Budget or Boost Your Income
If you can't pay your loan payments, look at your monthly budget. You might find some savings. For example, bundling services or using cost-saving strategies for utilities and groceries could help free up funds.
Alternatively, you could look into side gigs to generate additional income. Even a small, consistent boost to your earnings might help you stay on top of your payments.
3. Communicate with Your Loan Servicer
It might feel intimidating, but reaching out to your loan servicer can be a crucial step. Explain your financial situation, and they can guide you through available options to avoid defaulting on your loans. Many servicers are equipped to assist borrowers in your position and can provide tailored advice.
4. Explore Alternative Repayment Plans
If your current repayment schedule is unmanageable, you may qualify for a different federal repayment plan:
● Standard Repayment Plan: Fixed payments over 10 years (or up to 30 years with loan consolidation).
● Graduated Repayment Plan: Payments start lower and increase every two years, suitable if you anticipate income growth.
● Extended Repayment Plan: For those with over $30,000 in Direct Loans, this plan offers up to 25 years of lower monthly payments.
● Income-Driven Repayment Plans: These plans base payments on your income and family size. Some even offer credit toward loan forgiveness. Contact your loan servicer for help enrolling in these plans.
Lower monthly payments can help with immediate financial strain. However, longer repayment periods may lead to higher total interest costs. Tools like Federal Student Aid’s Loan Simulator can help you assess your options.
5. Consider Deferment or Forbearance
If all else fails, deferment or forbearance may provide temporary relief.
● Deferment: Allows you to pause payments, sometimes for up to three years. Eligibility is based on specific circumstances, like military service or financial hardship.
● Forbearance: Lets you reduce or stop payments for up to 12 months, with interest continuing to accrue.
Both options need approval from your loan servicer. You should think about them carefully. They can lead to more debt because of accumulating interest.
6. Consolidate or Refinance Your Loans
If you have multiple loans, consolidating them into a single loan with a simplified payment schedule could help. The new interest rate would be a weighted average of your existing loans, rounded up slightly.
For private loans, refinancing through a private lender could provide better terms, depending on your credit score. Refinancing federal loans with a private lender may make you ineligible for federal repayment plans and forgiveness programs. So, be careful.
Bottom Line
Understanding your options and crafting a strategy can help you regain control of your student loans. With the right plan, you can balance repayment while pursuing your broader financial goals.
Sources:
https://www.fidelity.com/learning-center/smart-money/repay-student-loans
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
