Risk Management

After graduating, many people make paying off their loans one of their top priorities. Unfortunately, what people discover is that, as it often does, life will throw them curveballs, such as job loss, medical emergencies and divorce, which will force them to change their priorities. In such cases, paying off college debt can often end up at the bottom of people’s to-do lists. However, when people do this, what they often find out is that ignoring these debts is one of the worst things you can do. Depending on their loan’s interest rate, what was once a seemingly affordable expense has enough time to develop into an unaffordable debt.

How Can I Pay Off My Student Loans Quicker?

Whether you are hoping to find a way to vault paying off your loans back to the top of your to-do list or you are a new graduate hoping to knock out your school debt right out of the gate, here are a few tips to help you pay off your student loans sooner rather than later:

Avoid skipping payments – If you cannot afford your payments, do not just skip them. You should get in touch with your lender and speak with them about options, such as lowering your monthly payment amount or forbearance.

Make sure to read the fine print – You need to read your loan agreement, because knowing certain details before a problem arises could allow you enough time to contact your lender and fix the issue without incident. For example, if the interest rate on your loan rises, it can make your monthly payment more expensive. If you know ahead of time that your payment is about to increase to an amount you will not be able to afford, you may be able to get in touch with your lender and renegotiate the terms of your loan so that your payment remains affordable.

Treat student loan forgiveness like a myth – Aside from situations where a person was scammed by a private lender, generally, people must pay off their loans in full. If people think that they will not have to pay off their student loans, then they could allow their student loan debt to grow out of control. People can allow this to happen, because they believe it does not matter since they expect their loan to be forgiven eventually. However, once they figure out they are wrong, it can be too late.
Student Loan Debt Is an Issue That Is Not Going Away Anytime Soon

President Obama considered the student loan debt crisis such a pressing issue that as his time in the Oval Office was winding down, he continued to work to solve it. Before his administration left the White House, President Obama implemented protections that prevented debt collection companies from charging high fees on student loans in default.

Unfortunately, after taking office, President Trump undid many of President Obama’s student loan protections. As a result, many people are racing to not only pay off their student loans in full, but also to do so as quickly as possible.

More than 1.1 million Americans defaulted on their federal student loans for the first time last year. When you default on federal student loans, the consequences are severe and can affect several areas of your life. You may experience consequences that include:

Wage garnishment: The Department of Education can garnish up to 15 percent of your disposable pay. Unlike private collectors, the Department of Education does not need a judgment to garnish your income.
Your balance increases: Your remaining balance immediately becomes due once you default. Unpaid interest and collection fees may also be added to your balance. The latter is especially true for borrowers with FFEL loans.
Reduced credit score: Loan servicers will report you to the three credit agencies if your loans remain delinquent for too long. You are also reported to the three credit agencies after defaulting. This can significantly lower your credit score. Having a low credit score can make it more difficult to secure employment, housing or other lines of credit.
You lose eligibility for financial aid: You are not eligible for federal financial while your loans are in default. Defaulting on your loans may cause problems if you plan on returning to school.
You lose eligibility for repayment plans: One of the major benefits of most federal student loans is that you can take advantage of income-driven repayment plans. You lose these options after defaulting on your student loans. In addition, you also no longer qualify for economic hardship deferments or forbearance.
Can I Get My Student Loans Out of Default?
Depending on your situation, it may be possible to get your federal student loans out of default. Borrowers generally have two options available – the Education Department’s loan rehabilitation program or converting your loans into a Direct Consolidation Loan. Both options may have pros and cons that are dependent on your individual situation.

If you choose loan rehabilitation, you must make nine monthly payments within 20 days of the due date for 10 consecutive months. For Perkins Loans, the requirement is nine payments for nine consecutive months. You can only use the loan rehabilitation program once. Once your loans are taken out of default, you can qualify for helpful repayment programs. In addition, records of the default are removed from your credit report.

Your second option is to consolidate your defaulted loans into a Direct Consolidation Loan. This will consolidate your loans into a single loan with a fixed interest rate. By consolidating your loans, you can exit default within a period of weeks instead of months. However, you may pay more over the life of your loan if your prior interest rate was lower.

Are you thinking of applying for a student loan? If so, a promissory note will need to be signed. Basically, this is a contract. On the due date, you will have to pay the loan along with the amount of interest based on the terms and conditions. Often, students don’t think much before accepting the terms and conditions of the promissory note. If you have got a loan but you are finding it hard to pay it back, you can refinance your student loan. However, make sure you consider 4 important things before you go ahead and refinance it.

No financing from the federal government

Remember: it’s the congress that decides on the rate of interest for the federal student loans. Moreover, the rates of interest are set based on the law irrespective of how good your credit rating is. If you have lower credit score, the interest rate will be higher and vice versa.

It’s possible to use a private loan to refinance a student loan. However, keep in mind that the same can’t be true about refinancing a federal loan into another federal loan.

Know the difference between refinancing and consolidation

Some borrowers believe that the consolidation of their loans is a good way of reducing the rate of interest just like refinancing. This is a common confusion as the options are quite similar. You get a new loan accepting new terms to replace a loan you took earlier. However, it’s important to keep in mind that you can’t reduce your interest rate by consolidating a federal loan.

However, you can enjoy some benefits with consolidation. For instance, you are free to opt for a service you like. Moreover, you can qualify for other forgiveness and repayment options.

Refinancing and your loan terms

Remember: refinancing will made changes to the terms of your loan. For instance, your interest rate may come down based on your cosigner or credit rating. The reduction in the rate of interest is the main thing that entices students.

As said earlier, the new loan will feature new terms and conditions. What this means is that the rate of interest may go up.

If you are finding it hard to repay your loan, the protection that come with federal students loans can help you. For instance, you can try repayment plans that reduce the payments.

Other methods

You can use other ways to cut down on the interest. Moreover, if you want to get federal student loans, you can use other options to reduce your interest rate. Therefore, it’s a good idea to give them a go. Some servicers may choose to reduce the interest rate provided you register in automatic payments.

You may also choose to pay an additional amount each month. As far as prepayment goes, federal student loans have no penalty. If you pay back faster, your overall interest will come down.

So, if you are going to refinance your federal student loan, we suggest that you consider these 4 things. They will help you get through the process more easily. Hope this will help.