Updated February 20, 2021
Paying off student loans can be a financial nightmare. The system is rife with confusing payment plan options, bad information, and pitfalls to avoid — and one wrong step can cost you thousands of dollars.
COVID-19 has created even more confusion. Federal student loan payments have been temporarily suspended. (Right now, they’re on hold until September 30, 2021.) There’s a chance that another major stimulus program could impact student loans in the coming months.
But even if your loans are on hold now, you’ll likely need to start making payments at some point. And Life Kit is here to help.
Knowing how to navigate the student loan system can help you find a payment plan you can actually afford — and even save money. Here are a few steps to get you on the right track.
1. Find out what type of student loan you have and create a repayment plan that works for you
If you have government student loans, which most people do, go to the National Student Loan Data System. You can see your credits there. Then consider what type of repayment plan works best for you. There are four broad categories: standard, staged, extended, or income-related repayment.
Default: Your credit services company breaks down the total amount you owe over a 10-year period. If you pay the same amount for 10 years, you’re done.
Graduate: Like the standard plan, this one lasts 10 years—but you pay less initially, and the payments get bigger every two years. This option can be good for borrowers who know they will earn more the longer they work.
Advanced: Pay a smaller amount over a longer period of time.
Income-Related Refund (IDR): Pay what you can afford. In IDR plans, you may pay off your loans for 20-25 years – but the payments will always be as much as you can afford. Some people will not owe anything. Then, after 20-25 years (depending on your loan type and plan), you will be forgiven for anything you haven’t paid. If you are in this plan, you must certify your income every year.
If you have a personal loan from a bank, you may have fewer options than these government student loans. You need to call your bank and see what options they offer.
2. Beware of indulgence
If you’re having trouble making payments or are short on cash, your loan servicer may suggest that you opt for a forbearance, which temporarily suspends your student loan payments. But that doesn’t necessarily mean that indulgence is the best option for you.
“Nine times out of 10, income-based repayment is a much better option,” says Bonnie Latreille, director of the nonprofit Student Borrower Protection Center. Latrielle says leniency might sound like a good idea — but it can get you bigger payments and higher interest rates in the long run.
3. Do your own research
Your student loan administrator is your primary contact for your student loans. But don’t treat them as a guide. “Make sure you go to them informed. Make sure you know what you want to do and what your options are,” says Latreille.
Your credit servicer won’t always suggest what’s best for you – so you have to be your own advocate. When they push back? Ask for written confirmation that they have included you in a plan you wish to participate in.
4. Give yourself space and time to get organized
“Any kind of sustainable project, like dealing with credit, takes a lot of time and deserves our full attention when we do it,” says Elizabeth Emens, a professor at Columbia Law School and author of Life Admin: How I learned to do less, do better and live more, a book about the invisible work in all of our lives.
You need to make sure your student loan administrator always has your most up-to-date address on file and research the right payment plan for you. Taking the time to do these things will pay off in the long run.
5. Tackle your loans head-on
There is only so much that one can work and only so cheaply that one can live. But if you have time to work more or cut costs in other areas of your life, it may be worth doing. If you can make those payments now, you’ll have more time later to spend however you want.
6. Be VERY careful when dealing with loan financing or consolidation
Consolidation is a process that combines all of your federal loans into a single federal loan. Refinancing is a similar process that consolidates your loans into one Private Loan. These might be good options for some – but they can be risky. For example, if you refinance your loans, you lose all government repayment plans like IDR. Consolidation may affect your status in an existing forgiveness plan.
So, before you go down any of these paths – do your research.
We’d love to hear from you. Leave us a voicemail at 202-216-9823 or email us at LifeKit@npr.org.
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The audio for this episode was produced by Sylvie Douglis and originally aired June 10, 2019. The Original audio can be found here.