Completing your college education can make you feel excited and liberated. However, this also means that you have to start repaying your student loan. This is a huge responsibility.
If you can plan early enough, you can not only save a lot of money on your student loans but you can make the transition with minimum stress. Here, you will find some actionable tips that can help you save money on your student loans.
Take advantage of the grace period
After you’ve just graduated, you have about six months before you are required to start repaying your student debt. While you may think that this is a good deal, the loan will become more expensive if the period elapses before you have cleared the loan. if you took a loan with government subsidies, you have the opportunity of paying the principal amount without interests as long as you pay within the grace period.
On the other hand, unsubsidized loans accrue interests from the instant you get the money. Although the lender doesn’t require you to make the payments immediately, the interests keep on growing. As such, you may want to repay the interests during the grace period. This lowers the amount you owe since your progressive payments will go towards settling the principal amount.
Consider an income-based repayment program
If you are facing genuine hardships with making the required payments on your student loan, an income-based repayment plan can help you out. Generally, these plans will limit your payments to only 15% of your annual income and at the same time, your term will be adjusted to 25 years. After you make payments for this period, any amount that is outstanding will be canceled.
However, this method is only appropriate for people who can’t afford the monthly payments. This is because you might end up paying a lot of money in interests, but it lower than you would have paid if you defaulted the loan.
Besides the forgiveness that comes after 25 years, you can still benefit from other programs that cancel your loan sooner. One such program is the Public Service Loan Forgiveness and it grants forgiveness to people working in government agencies and non-profit organizations. However, you must have worked with them for at least 10 years. In addition, there are programs that benefit lawyers, doctors, and teachers.
Set up automatic payments and surpass the minimum requirement
By signing up for automated payments, your creditor can offer you a discount on the interest you are supposed to pay. While the figure may appear small, it can translate into huge savings after several years. Besides, you won’t have to face the stresses of late payments.
If you can afford to pay more, do it. While this may take more of your available resources, you can save a lot of money in interests since the debt will be cleared sooner. To illustrate, if your loan stands at $50,000 and the interest rate is 6%, making at least $100 extra payments per month can save you more than $3,000. In addition, you’ll clear the entire amount two years earlier than scheduled. With most student loan providers, you will not be charged prepayment penalties so there are no additional costs.
Student loan consolidation
Student debt consolidation has gained popularity with graduates who have more than one loan. Basically, this option takes all your outstanding debts and they are combined into one. Instead of dealing with multiple loans which come with different interest rates, you’ll have a single loan with a defined interest rate. While the loan amount will appear higher, you will end up saving several thousand on your student debt in the long-haul.
However, this method is most beneficial to people with a good income and outstanding credit history. For instance, if your total student debt stands at $200,000 with an interest rate of 7%, its possible to refinance the loan at 4%. But this is only possible if your credit scores are high. You should also understand that by using this option, you will no longer be eligible for IDR options as well as loan forgiveness.
Find a creditworthy cosigner
When you apply for a student loan with a creditworthy cosigner, you are setting yourself up for easy approval and you also benefit from lower interest rates. Basically, most lenders will determine the interest rates for realistic loans based on the credit scores.
However, you should bear in mind that your cosigner is viewed as a co-borrower and they bear an obligation to settle the outstanding debt. At the same time, all the defaults and delinquencies will be reflected on the credit report of all parties. However, there are lenders who can offer cosigner release after making about 48 payments on schedule.
Use extra income to pay the loan
If you want to eliminate the debt earlier, you can make additional payments using any extra income that comes your way. The idea here is to minimize the interest you will be paying by the end of the repayment cycle. However, this option will be more suitable for people earning a high income since they have more money to meet other financial responsibilities.
On the other hand, this option also means you will forgo the option of getting loan forgiveness since you will have eliminated the debt before you can qualify for the program. As such, if you are certain that you don’t have to pay the entire amount; this might derail your plan.
While student loans may seem like a heavy burden, you can eliminate the debt and save some thousands in the process. It is not only important to start making the payments early but it is also crucial that you remain diligent on your payments. While there are numerous ways to help you save on your student loan, you need to stay focused on eliminating the debt. By using the tips in this article, you can increase your chances of becoming debt free and embark on other goals that contribute to financial freedom.