Student Loan Advice – Repayment Options

Understanding and managing student loans can be stressful for many graduates, however there are a number of lesser known options that can make managing and paying off student loans easier, and potentially help you save thousands on repayments.

This article looks at steps you can take to learn more about prepaying your student loans, student loan refinancing, student loan consolidation, and student loan forgiveness programs.

Prepaying Your Student Loans
It is sometimes unclear whether or not students will incur penalty fees if they decide to prepay their student loans. A number of student loan servicers often list ‘Penalty Free Prepayment’ as a benefit, however this benefit exists for all types of educational loans.

If you are interested in prepaying your student loans, the first step is to contact your student loan provider. Be clear that you want your prepayments to go towards the principal of your student loans, and not future repayments. This will ensure that any prepayments you make are used to pay down the student loans today, and are not held by the servicer for scheduled future repayments.

Student Loan Refinancing
Student loan refinancing gives you the ability to combine existing loans into a single, new private student loan, with a new interest rate based on your personal financial situation, credit history, and other factors determined by the lender. A neat feature of student loan refinancing products is that you don’t have to refinance all of your loans. This can create a significant benefit for some borrowers who might have a handful of high interest rate loans, and a few low interest rate loans.

Student loan refinancing companies can offer loans with interest rates starting as low as 1.90%, significantly lower than most interest rates on federal student loans and private student loans.

Most federal student loans have interest rates that range between 3.4% and 8.5%, and interest rates on private student loans can go above 10%. It’s important for students to learn more about their options and to understand what they could potentially save by refinancing.

Student Loan Consolidation
Student loan consolidation can be completed for both federal and private loans. The type of loans that you have outstanding will dictate which consolidation options you should explore.

A federal loan consolidation combines all of your existing federal loans into one new loan, with your new interest rate being a weighted average of the interest rates on those you consolidate.

A private consolidation, or refinancing, gives you the ability to combine both federal and private student loans into a new private student loan with interest rates that will be based on your personal financial situation, credit history, and other factors determined by the lender.

Federal Repayment Programs
Federal repayment programs are another option that students can use to help reduce the monthly repayments on their student loans. Most of these programs, such as ‘Pay As You Earn’, ‘Income Based Repayment’, and ‘Income Contingent Repayment’, require 10% to 20% of your discretionary income to be used towards repayments on your student loans each month.

There are salary caps with these federal repayment programs, and these programs can also extend your repayment term, which means that your student loans may be repaid over a longer timeframe. Although your loans may be forgiven at the end of the term under a federal repayment program, your total repayment cost could still be significantly higher over the life of the loan.

Forgiveness Programs
If you are a professional in certain occupations and have student loans, you may be eligible for student loan forgiveness. Depending on the profession and type of forgiveness program, some graduates could save over $100,000 in repayments over the life of their student loans, helping them alleviate a significant amount of their student loan debt.

If you’re employed in one of the professions below, it may be useful to review potential forgiveness options contained in the following repayment guides:

Kristen Caron is a member of the DailyWorth Connect program. Read more about the program here.