The Modern Millennial’s Battle With Student Loans

Last Updated on March 13, 2022

Everyone can agree that student debt is a problem in the United States. Now more than ever, student loans have come to the forefront of the cultural landscape. This February, Forbes reported that student loan debt in the U.S. had reached a record of $1.6 trillion, and the CARES Act provisions for student loans has brought them even further into the spotlight of public consciousness.

The everyday millennial’s battle with paying off student loans is a complex problem that is created by a variety of factors. Here are some of the issues and situations that typical millennials face when paying off student loans, along with some tips for actually tackling their debt once and for all.

That Moment When the Grace Period Ends

The grace period of student loans, typically lasting around six months after the completion of college, provides time for the new graduate to find a job. For those six months, they are free from the burden of making payments on their student loans. This period can seem to be a respite from the debt; however, the grace period can quickly turn into a period of stress. If the economy is in a dip, it can be difficult to find the job’s necessary to pay off student loans. Even when they do find a job, sometimes it can be difficult to make the monthly payments with an entry-level salary. The moment when the grace period ends is when reality starts to set in. Nonetheless, many still find the ability to begin making payments for a period of time. This then leads them toward the next hurdle – not getting discouraged by their loan balance.

The Difficult Task of Paying Off High Interest Rate Loans

Many millennials are trapped in high interest rate loans, where they attempt to pay their loans back, but the balance of the loans never really seems to go down, or at least not by much. The high interest rates simply counteract any effort to pay the loans off, leading many millennials to feel discouraged and stop making payments altogether. This causes their loan balance to increase, along with impacting their credit score with missed payments, which can hinder their ability to refinance for a lower interest rate later.

The Misleading Comfort of Student Loan Forgiveness

Loan forgiveness has often been discussed by both politicians and the media. After all, forgiving student loans would unburden hundreds of thousands from debt – however, there still stands no real basis for believing in total and complete student loan forgiveness. The closest to forgiveness that we’ve seen is the recent CARES Act, which waived payments on student loans through September 30, 2020, allowing those with federal student loans to stop paying for the period without having interest accrue. The constant talk of student loan forgiveness and even the CARES Act, while incredibly important and beneficial to those struggling with student debt, take away from some of the seriousness of paying back student debt on time. After all, why pay back loans when there seems to be student loan forgiveness on the horizon? This hope is the reason that many millennials decide to miss student loan payments, defer them, or even worse, go into default.

The Importance of Making Student Loan Payments

The talk of loan forgiveness should never trivialize the importance of paying off student loans promptly, as student loans can affect other things than simply your wallet. When many millennials graduate, they aren’t overly concerned with their credit score or history, and may not even know that missing student loan payments can affect them in this area. After all, they likely aren’t looking to buy a home or take out a personal loan immediately following graduation. They already may have to pay plenty of “new” expenses such as rent, utilities, groceries, etc., and unfortunately, student loans can fall by the wayside with these newfound expenses emerging.

However, missed payments, depending on how long you go without making them up, can have severe impacts on your credit score and credit history. Most prevalent is the presence of your missed payments on your credit report for up to seven years. In some cases, missed payments can lead to drops in your credit score as well. As such, it is important that you know how missed student loan payments can affect your credit score.

The Reality

The impact of missed payments on your finances cannot be understated. It leads to more interest to pay back, keeping the mountain of debt continuously growing, and it can drop your credit score substantially, especially if you have a good credit score to begin with. And, sadly, debt forgiveness isn’t guaranteed. The best way to avoid drops in your credit score and increasing debt is simply to take it seriously and pay it back timely. Worth noting is that if managed properly student loans can help your credit score in the long run.

How to Pay Back Student Loans Faster and More Effectively

Student loans can be seriously overwhelming, but there are several methods to pay them off faster and more effectively:

Set Up Automatic Payments

Automatic payments are an easy way to make sure that you are paying your student loans on time and never missing payments. They’re easy to set up and can take much of the burden away from keeping track of when you need to be making your payments.

Refinance Student Loans

Student loan refinancing is another way to pay student loans back quickly and more effectively. By refinancing, you choose which loans to consolidate and take out a new loan with a private lender, often with a lower interest rate and with a term length of your choosing. This allows you to either lower your monthly payments or pay your loans off faster by choosing a shorter term. ELFI customers have reported that they are saving an average of $278 every month or will see an average of $20,774 in total savings after refinancing their student loans.¹. Check out ELFI’s student loan refinancing calculator to estimate your potential savings.

Choosing a Different Term

Another method to pay back student loans quickly or more effectively is to change the term of the loan. Shorter loan terms typically have higher monthly payments but allow you to pay them off faster, while longer terms often lower the monthly payment amount. Adjusting the length of your loan term can help you better manage your student loans by adapting them to your goals and lifestyle.

Make Extra Payments

Making extra payments on your student loans allows you to make contributions that directly impact your loan principal balance, helping you save on interest long-term and pay off your loans faster. Keep in mind that if you have late fees or interest has accrued, your payments will first go towards late fees, then interest, then at last your principal balance.

Look into Student Loan Forgiveness

If you work in a public service position or for a non-profit, you may want to consider the Public Service Loan Forgiveness (PSLF) program or another loan forgiveness program offered by the federal government. Keep in mind that only about 1% of PSLF applicants actually qualify for forgiveness. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you may qualify for student loan forgiveness.

Federal Loan Repayment Plans

By default, upon completing your federal student loan grace period, you are entered into the Standard Repayment Plan. However, there are a wide variety of other repayment plans that the federal government offers, such as the Income-Based Repayment plan, which determines payments based on your income and is forgiven after 10 years of on-time payments. Check out the Federal Student Aid website to learn more about the options available to you.

Paying back student loans can undoubtedly be difficult and stressful, but by taking advantage of the many resources at your disposal, they can be managed. If you have questions about your student loans or methods of repayment, the best way to have them answered is to contact your loan servicer.

*Subject to credit approval. Terms and conditions apply.

¹Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 01/03/23 and 03/01/23. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.

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