Many borrowers struggle to meet their student loan repayment schedules.
Before the CARES Act, nearly 20% of student loan borrowers in the US were in default, according to a story by The Pew Charitable Trusts. Likewise, a study by the Brookings Institute showed that 23% of households with student loan debt were “in arrears” on their loan payments — and more than half of them directly cited COVID-19 as the reason they couldn’t afford to pay.
An extension of the CARES Act under President Joe Biden will provide some financial assistance to federal student loan borrowers in the form of suspended loan repayments through September 30, 2021.
“In addition, the CARES Act extended the current Employer Student Assistance Grant to student loans under Section 127 of the IRS,” said Kevin Hartnett, wealth advisor at Sensenig Capital Advisors in Coleville, Pennsylvania. “Employers can now pay up to $5,250 for student loans on behalf of employees, and those payments are not included in the employee’s taxable income. This change now gives employers an incentive to make these contributions, similar to the existing incentives to make contributions to employees’ pension plans.”
But if you have private student loans, the CARES Act offers no deferral. If you’re struggling to pay off your student loans, review your loan refinance options and compare loan servicers on Credible.
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What are the options for paying off student loans?
If you can absorb some short-term financial crunch, a good way to get rid of student loans is to make extra payments and pay off the debt faster. You can:
- Consider a student loan refinance of your personal student loan
- Be realistic about how the loan repayments will fit into your personal financial budget
- Take a part-time job and invest extra money in paying off the student loan
“There is no one best practice for every borrower,” said Anna Serio, a commercial loan officer at Finder.com. “Now more than ever, it depends on your individual financial situation.”
1. Consider a student loan refinance of your personal student loan
Amidst today’s low student loan refinancing rates, many borrowers are trying to change their repayment schedules and refinance their personal student loans at lower interest rates, which can help them invest extra money towards their monthly payments. (You can use Credible’s free repayment calculator to get an idea of what your new monthly due would be).
“Refinancing student loans can be a great way to save money on interest for qualified borrowers,” said Robert Farrington, creator of The College Investor website. “Right now, interest rates are at historic lows. So if you don’t qualify for a loan forgiveness or have a personal loan, it may make sense to refinance to take advantage of low interest rates and save money.”
If you think a loan refinance is the right move, then check out Credible, which offers an online tool that compares interest rates from multiple student loan providers at once.
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2. Be realistic about how the loan repayments will fit into your personal financial budget
If you have other debts such as For example, if you have outstanding credit card balances, use the pause in federal student loan repayments to focus on paying that debt first. “If you’ve lost your job or income due to COVID-19, it’s best to focus on keeping on top of the bills that are due immediately than paying off student debt,” Serio said.
If you have multiple high-interest debts, a debt consolidation loan can make management easier by moving them into a repayment schedule with a single monthly due date. You can visit Credible to see the best debt consolidation plan for you and consult a financial expert if you have any questions.
Depending on the amount of credit card debt you have, balance transfer cards with a 0% introductory period may also be another option to consider. Credible can help you compare and contrast multiple credit card types so you can find the perfect fit.
“Right now, perhaps the best strategy is to look at your budget and see how much you can comfortably afford to pay off your student loan for that month and funnel that money to your principal,” Serio added.
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3. Take a part-time job and invest extra money in paying off the student loan
Matt Schmidt, founder of Diabetes Life Insurance Solutions, paid off his student loan debt early by taking part-time jobs and putting the extra money he earned into his main bank account. “As a private person who has paid off the student loan early, I recommend paying back when you have the opportunity,” says Schmidt.
He advises taking on freelance gigs and funneling extra money into your student loan account.
“A lot of people have side jobs or part-time jobs, and a lot of gig workers get paid through PayPal, Venmo, or through paychecks that can be deposited just with a smartphone,” Schmidt said. “What better way to pay off student loan debt than to use that extra income to make regular payments?” Extra income like this can help you pay off debt even faster.
“I had a part-time drywall job and was paid weekly for that job,” Schmidt added. “As soon as I had the money in my account, I went online and made an additional payment of $100 to $200,” he said. “Over time, this strategy allowed me to pay off the entire balance in nine years instead of much longer.”
Also, be sure to check out the credible marketplace to see if you can refinance your personal student loans at lower interest rates so those extra payments have a bigger impact on your principal balance.
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