Top Twelve Tips for Repaying Student Loans | 08.12.13
- Get organized. Make a list of all your federal and private student loans, the amount owed, and due dates. To find information about your federal student loans, log into the National Student Loan Data System at NSLDS.ed.gov. You can also request a free copy of your credit report by visiting annualcreditreport.com or calling 1-877-322-8228. (Read the FTC’s warning about copycat free credit report sites that aren’t really free.)
- Keep your student loan lender informed of any changes in your name, address, telephone number, email address or marital status.
- Sign up for auto-debit on your student loan. You’ll be less likely to miss a payment and, in many cases, you may get a slight interest rate reduction on your loan.
- Claim the student loan interest deduction when you file your federal income tax return. You may be eligible to deduct up to $2,500 in federal and private student loan interest as an above-the-line exclusion from income. This means you can claim this deduction even if you do not itemize.
- Try to pay off your student loans in ten years, if at all possible, instead of choosing a longer repayment term. You’ll save money and make quicker progress toward eliminating your debt.
- Consider using student loan consolidation to streamline repayment. It’s available for both federal and private student loans, but these two types of loans cannot be consolidated together. Learn more about student loan consolidation.
- If you can afford to make extra payments, accelerate repayment of the loan with the highest interest rate first. This will save you the most money.
- To do this, send your loan payment with your loan id number and ask the lender to apply the extra payment to principal. State that you do not want them to treat the extra payment as an early payment of the next month’s payment as you do not want to skip a payment. Some borrowers will send the extra payment in a separate envelope a day or two after the required payment. This minimizes the opportunities for confusion.
- If you intend to accelerate repayment on your loans, you should not consolidate your loans. Loan consolidation replaces your loans with a single loan with a single interest rate, making it impossible to target the loan with the highest interest rate for quicker repayment.
- If you are having trouble meeting your federal student loan payments, contact your lender as soon as possible. Most lenders offer a variety of flexible repayment programs. You may qualify for a deferment, forbearance, or an alternative repayment plan and option (such as income-based repayment and extended repayment) that is more affordable. The disadvantage to using federal deferments and forbearances is that unpaid interest may be added to your loan balance, digging you into a deeper financial hole, so use these options as a last resort.
- If you are already in default, consolidate your defaulted student loans into one lower payment. If you have any difficulties, consider rehabilitating your federal loans by making 9 on-time full voluntary payments within 10 months. (This option is available to borrowers of Direct, FFEL, and Perkins loans. For information on how to get started and to learn about your options, see MyEdDebt site from the Dept. of Education). These payments are supposed to be reasonable and affordable. Providing the loan servicer or collection agency with information about your financial situation may result in a more affordable monthly payment. Be sure to ask about income-based repayment, which may yield a lower monthly payment. Report conflicts with loan servicers to the Consumer Financial Protection Bureau or the Federal Student Loan Ombudsman.
- Undergo credit counseling with a non-profit counselor. Borrowers who struggle with student loans often have problems in other areas of finances.
- Stay on top of your expenses. Know where you spend your money and be on the lookout for ways to save. For example:
- Use public transportation rather than owning a car
- Share a room with roommates instead of living alone (or move back in with your parents if the situation allows)
- Eat at home rather than eating out
- Since awareness is the first step in exercising control over your finances, become financially literate and track your spending for a month. A useful free site to help in the money management process is Mint.com
See more tips on responsible student loan borrowing.
Mark Kantrowitz, Senior Vice President and Publisher, Edvisors Network
Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. He is Senior Vice President and Publisher of the Edvisors Network. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college.
Co-author: David Levy, Associate Editor, Edvisors Network
David brings 30 years of experience as Director of Financial Aid at some of the nation’s leading colleges, including the Scripps College, California Institute of Technology and Occidental College. He is respected by students, parents and financial aid professionals nationwide because of his extensive outreach and volunteer activities, his extensive knowledge of financial aid and his leadership in helping to simplify the aid application process.
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