Student loan debt sits at $1 trillion as 2013 comes to an end, according to the Consumer Financial Protection Bureau, and 81 percent of borrowers carry more than $40,000 in debt. If you're reevaluating your student loan repayment process, you should know about these options that can help.
Increase Your Monthly PaymentsPaying the minimum amount for your student loans may cushion expenses in the moment, but it ends up costing you more in the long run. Research repayment options suitable for your financial situation to prevent high-interest payments that end up driving up the total cost. Forbes' Maggie McGrath, who covers personal finance for millennials, recommends a repayment schedule that includes 120 payments over a period of 10 years.
Once you have a job, try to add extra money on top of the minimum payment required. You'll reduce your principal and lower the total payback amount.
Pay a Lump SumIf you receive an inheritance or any other large sum of money, consider putting it down on your principal or just paying off the loan entirely. Your money will serve you better paying down the debt and reducing your total interest than sitting in a savings account earning a paltry .06 percent. Similarly, if you receive a structured settlement or other type of annuity, consider selling it and using the money to pay down or off your loan.
Get a Different Repayment PlanPaying your loan down faster isn't always an option in some financial situations, and at times it's just impossible. The following programs calculate a fixed percentage based off your income and although they extend McGrath's suggested repayment period, they are available to you:
- Income-Based Repayment (IBR): Monthly payments are 15 percent of discretionary income for a 25-year payment period
- Income-Contingent Repayment (ICR): Monthly payments are determined by adjusted gross income, family size and total Federal Direct loans for a 25-year payment period
- Pay-As-You-Earn: Monthly payments are 10 percent of discretionary income for a 20-year payment period; however, 2011 and later graduates most likely won't qualify
Make sure during auto-pay that you provide the government with annual income information so you can remain enrolled, advises Rick Ross, co-founder of College Financing Group. Services will put borrowers who haven't supplied updated income data on a standard repayment plan, which can significantly drive up monthly payments.