Get Help From Your Employer
To attract top talent, more and more employers are offering student loan repayment assistance. With many programs, employers match your payments on your loans, much like a 401 match. With their help, you could pay off the debt faster and save money.
Ask your human resources office if your company offers such a program.
Consolidate Your Federal Loans
Federal loan consolidation lets you combine all of your government loans into a single bill. It wont result in a lower interest rate, but it could extend your repayment term. Depending on your total debt, terms can range from 10 to 30 years. With a longer term, your monthly payments will be lower. However, a longer term also means youll pay more interest over time.
This strategic move is only available to federal student loan borrowers. If you have private student loans, consider refinancing.
Consolidate Multiple Student Loans Into One
If you graduated with an assortment of federal and/or private student loans, you may want to consider consolidating them.
This not only makes budgeting easier, but it also could lower your monthly payment.
When you consolidate, your new interest rate will be a weighted average of the rates on all your individual loans so you wont necessarily save on your rate. But you may find that one consolidated minimum payment each month ends up costing less than multiple smaller, minimum payments.
Keep in mind that if you reduce your monthly payment without reducing your interest rate, you will pay more over the long haul.
If you choose not to consolidate loans, you can still save money over time by paying extra toward the student loan with the highest interest rate, to make the most expensive debt go away fastest.
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Can I Avoid Capitalization
One way to avoid capitalization on your unsubsidized loans is to make payments on your interest before regular loan payments are required. Although not everyone is able to afford it, making interest-only payments before you begin making your scheduled monthly payment can limit the negative effects of capitalization. You can zap your interest by paying it off as it accrues, then there’s nothing left to capitalize when payment time comes.
Some Background: Heres Why Your Car Loan Payment Is Too High To Begin With
If youre like most Americans, you were excited to buy a new car, to breathe in the new car smell . You asked your friends about how they liked their cars, you did 15 hours of online research, researching reliability and gas mileage and so on. You checked around with a number of car dealerships to see who had the right color and who would give you the best price.
Heres the problem: you probably didnt shop for a car loan. Over 70% of us get our car loans when were signing the paperwork in the back office of the car dealership. While this is convenient, it is a terrible idea. Why? Because the car dealer probably does not have your best interest in mind when arranging a loan for you.
The problem is getting worse. Car dealership profitability has shifted dramatically over the past 10 years. Car dealers used to make most of their money the way you would expect. They buy a car from the Ford or Toyota factory, and sell that car to you for a higher price. Simple and old fashioned. But over the last 10 years, the internet has created much greater price competition among dealers for your business. The result is that we as consumers do much better and car dealers earn less when they sell you a car. Thats good for you.
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Make Sure You’re Enrolled In Autopay
Most loan servicers will knock a quarter percentage point off your interest rate just for enrolling in automatic payments.
That 0.25% discount may sound small, but it can yield significant savings over the life of your loan. The larger your balance and the longer your loan term, the more you’ll save.
Have Your Homes Tax Assessment Redone
If your home loan has an escrow, property taxes may take up a noticeable chunk of your mortgage payment each month.
Property taxes are based on each countys tax assessment of how much your home or land are worth. Some homes in urban areas are overvalued, causing the taxes to be high. The assessment is different from an appraisal since it is conducted by your county for tax purposes only.
As a homeowner, you can request to have the assessment done again by filing with your county and requesting a hearing with the State Board of Equalization. If the protest is approved, your homeowners taxes will decrease along with your monthly mortgage payment.
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How Do I Sign Up For A Graduated Repayment Plan
Each IDR has its pros and cons, and each has qualification requirements. All hope isnt lost, though, if you have federal student loans, earn too much money to qualify for an IDR and you still need to lower student loan payments.
In this case, consider a graduated repayment plan.
A graduated repayment plan sets your term at 10 years, and with Direct Consolidation Loans can be extended to 30 years. Payments start very low, usually under $50 a month, and increase every two years regardless of your income.
While the lower minimum monthly payments might be nice, you again risk paying much more over the life of your graduated repayment loan than you wouldve with your standard loan. Also, your minimum monthly payments will increase every two years even if your income doesnt increase.
Log Into The National Student Loan Data System
Caveat: The NSLDS pertains only to federal loans. If you have private loans, you’ll need to find your loan balance elsewhere .
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Student Loan Repayment Assistance Programs
You can also look into repayment assistance programs, which can help you lower your payments or even pay your loans off completely. These are typically offered through various state and local agencies, as well as through non-profits and community organizations. In some cases, your employer might offer one as a benefit.
If you need help finding an assistance program in your area, this state-by-state guide can point you in the right direction.
Get Started On The Right Foot
It can be hard to wait when youre ready to buy a home. If youre just beginning the process and looking for ways to keep your mortgage payment low, having the 20% down payment is a great first step. Setting a larger amount of money aside also gives you options when it comes time to decide how much you want to pay for your mortgage each month.
Even if youve been approved and can afford a specific mortgage payment, a larger down payment lowers the amount of principal you owe and removes PMI costs that can add a large amount to your overall payment.
No matter what stage of the home buying process youre in now, it helps to have a trusted advisor to answer your questions and create a plan thats best for you and your financial situation. At FirstBank Mortgage, our goal is to help our customers get to a better place whether thats in new home or a new financial position. For more information, questions or concerns, please email and well connect you with a loan officer in your area.
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What Are The Different Kinds Of Student Loan Debt
There are both federal and personal student loans. Many students have a combination of both types, and thats something to consider with some of the student loan payment strategies below.
Federal student loans often have more favorable terms and conditions such as not needing a credit history, obtaining a fixed rate, often lower interest payments, especially for those with poor credit, and forbearance and deferment option, the latter of which many used during the height of the COVID-19 pandemic.
Private student loans have their advantages, too. Those with good credit scores can sometimes find more favorable interest rates. There are also higher borrowing limits which after graduating may feel more like a Ponzi Scheme and there are statutes of limitations if you default on your private student loans.
There are statutes of limitations for federal student loans Uncle Sam will get his money.
Enroll In Automatic Payments
Most lenders offer discounts for signing up for automatic payments. Connect your bank account, and you could qualify for a 0.25% rate discount. Although that might not sound significant, it could reduce how much you pay over time.
For example, say you had $30,000 in student loans at 7.00% interest rate. If you were on a standard repayment plan and qualified for the 0.25% discount, youd save nearly $500 over 10 years.
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Choose Your Debt Amount
Forget terrorism, climate change or a Jonas Brothers reunion tour. The biggest worry millions of young Americans have is student loan debt.
Here is how bad the situation stands in 2019:
- Almost 45 million of us are on the hook for a collective $1.5 trillion, which is three times the amount of debt owed in 2005.
- Somebody defaults on their student loan every 28 seconds, according to a 2018 study titled Buried in Debt.
- Student loans are such a worry that 20% of borrowers say they have delayed getting married, and 26% have put off having children.
- A recent survey of almost 8,000 borrowers also found that 33% say their monthly loan payment is higher than their rent or mortgage, and 85% said its a major source of stress.
So, how can you control student loan debt instead of letting it control you?
A good first step to lowering stress is to lower your monthly payment. Paying less in the short run usually means paying more in the long run due to interest charges. Its worth considering, however, especially if youre just starting out and dont have much income.
Here are some strategies that could help you get on with your life, while still paying back your student loan.
Throw Away Your Mortgage Insurance
Mortgage insurance is an additional cost that needs to be shouldered by anyone who makes a conventional loan or FHA loan. If you are going to throw away your mortgage insurance premium, you will notice a decrease in your monthly mortgage payment.
Eliminating your mortgage insurance is easy. You just need to apply for a conventional loan refinancing. Your PMI or Private Mortgage Insurance is a requirement if the down payment you make for a conventional loan is not more than 20 percent. You can cancel it by talking to your lender and showing the evidence and documents that prove that you have ample home equity. Aside from that, refinancing is also another way to eliminate your private mortgage insurance.
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Sign Up For An Extended Repayment Plan
If you have federal student loans and need a lower payment and are willing to make payments over a longer repayment period, an Extended Repayment Plan might be for you. Under this approach, your repayment term could be as long as 25 years, dramatically reducing your monthly payment. To qualify, you need to have at least $30,000 in Direct or FFEL federal loans.
Because of the longer repayment term, you could pay thousands more than you originally borrowed due to interest. However, the tradeoff might be worth it to get a lower payment and make room in your budget now.
Should I Refinance My Home Loan And Change My Repayment Frequency
A common strategy for saving money on interest is to adjust the number of times you make loan repayments per month.
Many loans do not offer options for paying a loan more than once per month so if you find a lender that allows you to make fortnightly or weekly loan payments, you could save thousands of dollars in interest charges.
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Refinance Several Loans Into One Loan
Many borrowers have a mix of both federal and private loans that they’d love to consolidate. While you can’t consolidate private loans with the federal government option we outlined above, there is another way to combine multiple loans into one. If you want to simplify your loan payments for federal and private loans and get a lower monthly payment while you’re at it consider refinancing through a private lender.
Remember, if you refinance your federal loans along with your private loans, youll lose access to those specific benefits we mentioned earlier that are available only for federal student loans. Depending on your particular situation, the lower interest rate may be a worthwhile trade.
If you do refinance your federal and private loans together, you’ll follow the steps we’d laid out above under How to refinance your private student loan.
Make Sure You Tell Your Lender First
However, unless the lender specifically allows it in the contract, you cant simply overpay without warning.
You must give them notice youre making an overpayment and make the payment within 28 days. You can send the payment with the notice if you prefer.
If you do send payment without notice, the lender can treat the payment as having been received 28 days later and you’ll be charged interest during this time.
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Accomplishing Your Other Goals
If you choose to refinance to lower your monthly payments, you may also have the opportunity to make additional changes to your loan at the same time. Depending on your circumstances, you may also be able to switch to a fixed-rate mortgage or borrow from a portion of your available home equity. Talk to your lender about what youd like to accomplish and see whats achievable for your situation.
Sign Up For Credit Counseling
Consumer credit counselors are sometimes better skilled than you would be at negotiating lower interest rates and payments from your creditors. Enrolling in a credit counselor’s debt management plan, or DMP, will allow you to get lower monthly payments, making it easier to pay off your debt. Credit counselors can also help you make a budget and teach much-needed money management skills.
When you’re choosing a credit counselor, make sure you choose a reputable one . Be careful not to confuse them with debt settlement companies that offer to lower your debt, but often make your credit score worse during the negotiating stage.
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Consider A Graduated Payment Plan
If you’re looking for a longer-term option that extends past the forbearance period, consider the Graduated Repayment Plan.
The federal government automatically places borrowers in the Standard Repayment Plan, which consists of 10 years of fixed monthly payments. Switching to a graduated plan keeps the time period the same, but starts you out with smaller payments in the early years, ramping up over time as you start to make more money.
Is This A Solution For Everyone
Saving for yourself is always a solution for everybody, but these account contributions will lower your student-loan payments only if youre on an income-driven repayment plan. Since you have to certify your income annually, if you can lower your AGI, your new discretionary income will reflect on your updated student-loan payment.
If youre on other student-loan repayment plans, such as the Standard 10-Year Plan, Extended Plan, or Graduated Plan, these tools will not help you lower your payments since they are set on a schedule vs. being based on your income.
With open enrollment approaching for many Americans, nows the time to opt into some of these savings vehicles that can also help you lower your student-loan payments.
Saving for yourself is always a good thing, and finding the financial balance to make it happen will result in a long-term win for your future.
* https://thecollegeinvestor.com/21666/discretionary-income-calculator/ https://thecollegeinvestor.com/20912/2018-hsa-contribution-income-limits/
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If You Have A Complaint About An Early Repayment Charge
If for any reason you arent satisfied with how lenders have dealt with your early repayment, you should complain. For example, if you think youre being overcharged or treated unfairly.
It’s usually a good idea to complain to your lender first. If youre still not satisfied, you can take your complaint to the Financial Ombudsman Service if necessary.
Why Refinancing Can Help
Refinancing to a lower interest rate can transform your loan payment from panic territory to completely manageable. In fact, refinancing your student loans is one of the only ways to reduce your monthly payments without potentially increasing the amount you pay in the long-term.
When you refinance your student loans, you basically get to start with a clean slate. You choose a new lender, get a new interest rate, and agree to new loan terms.
Private lenders are currently offering interest rates as low as 2.8%. If you have current loans with 6% or 7% interest rates, that reduction in interest could save you hundreds of dollars each month.
Over the life of the loan, you could save thousands.
In fact, the average borrower who refinances lowers their payment by $253 a month or saves over $16,000 over the life of the loan.
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Be Part Of Mortgage Forbearance
Aside from applying for a loan modification, another option you may consider is applying for a mortgage forbearance. This is applicable if you are looking for a short-term solution to your problem, which is you dont have enough money to pay your monthly mortgage on time.
If you are experiencing a financial hardship, which you think can last for a couple of weeks or months only, then besides loan modification, you can apply for mortgage forbearance.
When you apply for mortgage forbearance, you and your lender may create an agreement regarding the suspension or lowering of your mortgage payment in just a short period of time. After the forbearance period ends, your monthly payment will be back to normal.
If you are planning to apply for a mortgage forbearance, you need to talk to your lender a few weeks before you miss your monthly mortgage payment.