What to do When Your Student Loan Payment is OverwhelmingOctober 15, 2020
Having student loans is not unusual. In fact, 45 million people have them. It’s also incredibly common to feel overwhelmed by your student loan payments.
A survey of student loan borrowers found that almost 65% of respondents said they lose sleep because of the stress caused by their loans. If you find yourself overwhelmed by your monthly student loan payment, there are some options you should consider to lessen the burden.
Before you can explore alternatives, however, you need to know the types of loans you have. Certain options are only available for federal loans as opposed to private loans. Check the Federal Student Aid website to determine any federal loans you may have, and request your free credit report to see any private loans. Once you’re familiar with your loans, you can consider new courses of action.
Create a Budget
If you don’t already have a budget, create one! This will allow you to see if you can afford your current student loan payment. It will also show you areas where you’re spending unnecessarily. If you find there just isn’t enough income to cover all your necessary expenses, then you can begin working on different ways to reduce your student loan payment.
Research Different Payment Plans
If your federal student loan payment is overwhelming, consider switching to a different payment plan. When you initially begin repayment, your loans are automatically put on the standard repayment plan. On this plan, your payments are based on a ten-year repayment term.
A Direct Consolidation Loan can help you change your payment plan to help make your payment more affordable. It can also help consolidate multiple federal loans into one loan. (Note: Consolidating your federal loans is different from student loan refinancing, discussed below.)
This will help you qualify for certain longer repayment plans, resulting in a lower monthly payment. One of the drawbacks of extending your payment term is you will end up paying more in interest costs over time.
Income-Driven Student Loan Repayment
Certain loans are eligible for income-driven repayment plans. They can help make your payments more affordable and are based on your income and family size.
Graduated Student Loan Repayment
If an income-driven repayment plan does not work for you, you can change to a graduated repayment plan. Your payment will begin low and increase over time for a ten-year term.
Extended Student Loan Repayment
Another option is an extended repayment plan. To qualify, you must have certain loans over at least $30,000. Your payment may be fixed or may increase over time for a 25-year term.
Look Into Refinancing
If you have overwhelming private or federal student loan payments, consider student loan refinancing. Refinancing may lower your interest rate and reduce your monthly payment. This is a good option even if your current payment fits your budget. Learn about the benefits of refinancing student loans.
Refinancing can help lower your monthly payment, and can also save you thousands of dollars in interest over the life of the loan. Refinancing means obtaining a private loan to pay off your existing student loan or multiple loans.
Student loan refinancing differs from consolidation, which is only for federal student loans and may not necessarily reduce your interest rate. You can refinance private or federal loans, or both, and can also change your student loan repayment term to better fit your needs.
Here is an example of how refinancing can save you money:
If you have $65,000 of student loans with a 6% interest rate and have 10 years remaining on your loans, you will pay approximately $722 per month. If you refinance and qualify for a lower interest of 3.61%, your monthly payment would be reduced to approximately $646 per month. This equals savings $76 per month in savings. You will also save more than $9,000 in interest over the life of the loan.
To see how much you could save, try ELFI’s Student Loan Refinance Calculator.*
Increase Your Income
Of course, increasing your income is easier said than done. If your student loans payments are becoming overwhelming, however, it may be a necessary step. Increasing your income through overtime hours or a side hustle can make your payments more manageable. A side hustle can be as easy as babysitting or dog walking, or more involved like starting a side business based on a passion.
If you haven’t begun repayment on your loans, but know you will face a significant loan payment after graduation, consider these steps:
Build a Budget Early
Start a budget before repayment begins that includes your future student loan payment. This will allow you to see if you will be able to comfortably afford your payment. It will also help you build an emergency fund and a strong financial foundation.
Seek Employer Student Loan Benefits
Look for an employer that offers student loan assistance. The number of companies that are offering student loan benefits is increasing, although the benefit is still rare. Some offer monthly benefits that can help you pay your loans off faster. Others offer a yearly benefit amount for a certain number of years. Either way, extra money from an employer to help pay loans will help you reduce your loan amount faster.
Work Toward Public Service Loan Forgiveness
Apply for employment that may qualify for forgiveness. If you have federal loans, certain employment can qualify for forgiveness under the Public Service Loan Forgiveness program. Certain loans and types of employment are required so be sure to pay close attention to the requirements.
Rather than not paying student loans, if your monthly payment is overwhelming, instead explore your options to reduce your payment while furthering your debt-free journey.
*Subject to credit approval. Terms and conditions apply.
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