Finding ways to help save on your student loan repayment can save a lot of time and stress when managing your student loans. Take the time to clarify these commonly misunderstood repayment strategies.
1. The Truth About Prepaying On Your Loans
It is often unclear whether or not prepaying on your student loans is penalty free. Student loan servicers often list penalty free prepayment as a benefit, however this is true for all education loans. So if you have been worried about prepaying because of potential fees, contact your student loan servicer and let them know you are interested in prepaying. Make sure to be clear that you want your payments to go towards your principle and not future payments.
2. Why Refinancing Is An Emerging Option
Direct Subsidized Loans in the past 10 years have ranged between 3.4 -6.8%, while private and graduate school loans have toppled 8% during this period. Graduates are looking for ways to pay back these high interest rate loans and fortunately market rates have dropped to historic lows in recent years. This has enabled, banks, credit unions, and alternative lenders alike to offer low interest rates and help graduates repay their student loan debt. See if your interest rate is too high with Credilble.
3. How Consolidation Can Help Manage Your Repayment
A student loan consolidation can either be federal or private. A federal consolidation combines all of your federal loan servicers into one new federal servicer of your choice. Your new loan will be a weighted average of your previous loans. A private consolidation, or refinancing, will combine both federal and private loans into a new loan that is based off your financial situation. Your current loan situation will dictate which option you should explore.
4. Are Federal Repayment Programs Are Right For You?
Federal repayment programs are a great way to help reduce your monthly payment. Most of these programs such as Pay As You Earn, Income Based Repayment, and Income Contingent Repayment only require 10-20% of your discretionary income. However, there are salary caps with these programs and these programs will extend your repayment several years. Although your loans will be forgiven at the end of the term, your total repayment cost could be much higher.
5. How Student Loans Affect Your Credit
Consistent on-time payments can help strengthen your credit score. These payments contribute to your payment history, which makes up 35% of your credit score. Your student loans also contribute to your length of credit history (15% of score) and add to types of credit (10% of score). If you are trying to build your credit, keeping your student loans around can actually help you. Remember, Being a day late on a payment is not a disaster, and likely won’t factor into your credit score, but all payments over 30 days late are reported to the credit bureaus. For federal loans, default occurs after 270 days of no payments.
6. The Difference Between Deferment and Forbearance
Deferment and forbearance are both helpful for those experiencing economic hardship. Deferment is often issued for scholarships, returning to school as well as for economic reasons. Forbearance can be much easier to file and with that even your subsidized loans will accrue interest, which is not the case for federal loans.
If you are interested in seeing how much you could save by refinancing your existing student loans, visit Credible.