Graduates can take several paths when it comes to student loan repayment. The right one can save them money in the long run and help with their financial wellbeing.

There are multiple options, including payment plans that factor in your income and offer loan forgiveness after 20 or 25 years. Here are some tips to help navigate these choices.

Know Your Options

When it comes to repaying student loans, there are a number of options. From deferment and forgiveness to income-driven repayment plans, it is important for borrowers to know their options so they can develop a plan that works for them.

One option to consider is loan consolidation. This can simplify the process by combining multiple loans into one, making it easier to keep track of monthly payments and interest rates. However, borrowers should note that this may not always be the best option for them because they can lose some benefits of their original loans.

Another option is the standard repayment plan, which provides a fixed payment over 10 years. This is a good choice for borrowers who have enough income to afford their loan payments, but who may not qualify for an income-driven repayment plan. This plan also has the benefit of allowing borrowers to have their remaining debt forgiven after 20 or 25 years of consistent and on-time payments.

Create a Budget

Creating a budget is the first step to financial planning. Having a clear idea of how much you’re making, spending and saving can help you prioritize your goals, such as paying off student loans.

Start by listing all the money you typically make each month, including regular paychecks, estimated commission, side hustle income and child support. Use a budgeting tool such as EveryDollar to sort it all out, dividing your net monthly income into categories for essentials, wants and savings/debt payments.

If your payments are too high under standard repayment, look into other options like graduated or extended repayment. But note that these plans will increase your total loan balance over the long term. Use a Federal Loan Simulator to see what your payments will be under different plans.

Know Your Interest Rates

When it comes to repaying student loans, understanding your interest rates is a critical first step. A higher rate can add tens of thousands to your total loan cost.

To avoid surprises, calculate your interest rate on all your federal and private student loans before graduating. Then, enter the details into a repayment calculator to see how your payments will look after graduation. A simple change in the interest rate, like half a point, can make a huge difference to your total costs.

If you’re able to lower your interest rates after graduation, you may be able to save a significant amount of money on your debt. If you can’t lower your rates immediately, consider using income-driven repayment plans through the government to help ease your transition into life after college. In addition, you can try to find work to earn extra money to pay down your debt. Online jobs, freelance projects and part-time opportunities are often flexible enough to fit your schedule.

Make Payments on Time

Whether you’re on the standard plan or an income-driven repayment option, making your payments on time is important. If you miss even one payment, your interest rates may go up and you could end up paying more in total over the life of your loan.

Depending on your options, you may be able to save money by making an extra payment beyond the minimum each month. However, if you make extra payments, be sure to specify that the additional amount goes toward your principal balance and not just future monthly payments.

By paying off student debt ahead of schedule, borrowers can free up their finances and reach other financial goals, like homeownership or saving for retirement. It also improves a borrower’s debt-to-income ratio, which can help them qualify for other types of credit and loans.

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