Everyone wants to pay their student loan including you. But before you do so, you have to make sure that for each repayment plan, you understand the advantages as well as the disadvantages.
Below are the things you need to know.
1. Student Loan Consolidation
A process of combining your federal student loans into a new federal student loan called a Direct Consolidation loan refers to the federal student consolidation. For you to be eligible for Direct Loan Consolidation, you need to have a federal student loan and not a private student loan. The weighted average of your current interest rate is equal to your new interest rate when you consolidate student loans rounded up to the nearest ⅛%.
Advantages: Your federal student loans will be organized into a single monthly payment by student loan consolidation.
Disadvantages: You can’t lower your payment or save money with student loan consolidation.
2. Income-Driven Repayment
Income-driven repayment plans such as PAYE, IBR or REPAYE should be considered for federal student loans. This is typically lower than the standard repayment plan and your payment is based on your family size, discretionary income, and other factors. Your federal loans (not private student loans) can be forgiven after a certain period of time such as 20 or 25 years.
Advantages: If you face temporary hardship, you can lower your monthly payment based on your income.
Disadvantages: Even if you have lower payments interest still increases. You cannot save money or receive lower interest. On the amount forgiven, you owe income taxes.
3. Student loan forgiveness
All your federal student loans will be forgiven in the Public Service Loan Forgiveness which is the federal government’s primary program. One of the requirements you have to meet is to work full-time for a qualified non-profit employer or public service and make 120 payments. By completing an Employer Certification Form with the U.S. Department of Education is a good way to start. Companies that promised to forgive all your student loans don’t exist so don’t fall for it.
Advantages: Your federal student loans can be fully forgiven.
Disadvantages: 120 monthly payments are required by the program which will roughly take 10 years. This requirement can be very tricky.
4. Refinance student loans
An incredibly cheap rate that starts at 1.99% can be found in student loan refinancing rates. For you to pay off your student loan debt, student loan refinancing is the fastest way. You combine your existing private student loans, federal student loans, or both into a new student loan with a lower interest rate when you refinance. You can also choose your new loan terms. Applying with a consigner with a lower interest rate is possible. Borrowers with a stable and recurring job, at least 650 credit score and a low debt-to-income ratio is what lenders prefer.
Advantages: You can save money, get a lower interest rate, and pay off student loans faster. Your student loans will be simplified into one loan and one payment.
Disadvantages: You won’t have access to income-driven repayment plans if you refinance federal loans. However, if you lose your job or face financial hardships, most lenders allow you to pause payments.
Best Private Student Loans
How well you shop around is where finding the best private loan depends.
You should consider some certain factors if you looking to take out a private loan:
You can usually see private lenders lists on a school’s website. Before coming up to their selections, universities and colleges are required first to explain why they do so. So before taking out a private loan, it would be good for your family to review them.
There is no fast and easy way to pay off your student loan completely. You have to make sure that the choice you make is of the best interest of you, your family, and your financial capability.
Flynn Financial Group Inc