It’s unlikely that universal student loan forgiveness will ever be possible, so it’s important to plan for the future.
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Progressive legislators are urging President Biden not to extend his campaign promise to eliminate at least $10,000 student debt per borrower. However, 43 million students still have student loans. Jen Psaki, White House Press Secretary, stated in a December 10 press conference that the student debt freeze which was set to expire in January 2022 would not be extended. This means that those who have outstanding student loans can expect to receive their payments in February.
You could end up in debt, depending on how long you plan to repay your loans. Intelligent’s survey found that 1 in 10 student loan borrowers remain in debt 20 years later than they were when they graduated. It can be hard to save money for your future or make plans for the future if you have to pay monthly repayments for your student loans.
When will your student loans be paid off?
Your repayment plan and the type of student loan you have will affect how long you pay off your loans. Contact your loan servicer if you don’t know what plan or how long your loan term is.
- Federal loans
Federal loan borrowers typically take 16 to 19 years to repay their loans, according to an analysis of government data performed by Savingforcollege.com. Borrowers who are able to repay their loans in 10 years or less can be surprised by these numbers. These default Standard Repayment Plans often require 10% of the borrower’s discretionary income. This is too much for most people to afford comfortably.
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Michele Streeter (associate director of policy advocacy and policy at The Institute for College Access & Success) says that very few borrowers repay their debt within the first ten years.
- Private student loans
Because there are fewer repayment options, private loans offer less flexibility in terms of repayments.
Streeter says that private loans tend to have a shorter repayment period than the terms offered by lenders. The loan term you choose is what you signed up for.
According to the Consumer Financial Protection Bureau (CFPB), it generally takes between 10 and 25 years to repay student loans. It could take longer if you are in deferment, forbearance, or fall behind with your payments.
When do you start paying your loan?
The type of loan you have will determine when you must make your payments. Federal loans usually have a grace period of six months after you leave school, graduate or drop below half-time enrollment. While you are not required to pay interest during this grace period, most cases will still see interest accrue. To avoid having interest added to your principal balance, you can pay the interest accruing during your grace period.
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The grace period for Grad PLUS and Parent PLUS loans is not available, but borrowers have the option to defer payments up to six months after graduation.
How to pay back student loans faster?
Student loans can cause a lot of stress and prevent you from saving for other goals. These five tips will help you pay your student loans off faster.
- Stick to a Standard Payment Plan
It may seem tempting to change repayment plans in order to receive a lower monthly installment, but it is best to stick with a Standard Repayment Plan. Extended repayment plans or income-driven repayments can increase your loan cost.
- Lump Sum Payments can be made with unexpected windfalls
You may be surprised to find unexpected income over time. You can use these windfalls to reduce your loan payments faster, whether it’s a tax refund or a bonus from your job.
- Pay More than the Minimum
Betsy Mayotte (founder and president of The Institute of Student Loan Advisors) says that student loans are not easy to pay off. “The faster you pay the more interest you pay in the long-term and the less you have to pay them off, the lower your monthly payments and the quicker they are paid.”
- Enjoy Interest Rate Discounts
A quick way to speed up your student loan timeline is by using interest rate discounts offered by your loan servicer.
Some private lenders and federal loan servicers offer automatic payment discounts that reduce your rate by about 0.25%. You may also be eligible for loyalty discounts from lenders, which can further lower your rate. These discounts can help you save money and make it easier to pay off your debt quicker.
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- Ask Your Employer for Help
Your employer may be a valuable resource for student loan repayments, even though you might not know it.
Mayotte says, “Taking advantage any employer repayment plans and matching plans is also an excellent strategy.”