Five Ways To Reduce Your Student Loan Debt Today
If you are looking to reduce your student loan debt, you are not alone. Current graduates are carrying upwards of $1.5 trillion in student loan debt. In the midst of so much uncertainty with the coronavirus pandemic, there is some silver lining. The CARES Act forbearance period for student loans overlaps with the student loan grace period. This provides borrowers with a chance to pay down some of their student loan debt. In this article we will cover five ways to help reduce your student loan debt.
What is a grace period?
A student loan grace period is basically a certain number of months between when you graduate college to when your first student loan payment is due. During this time, you do do not have to make any payments. Pretty much all student loans offer a grace period but the duration offered varies by lender.
Most federal student loans have a grace period of six months. If you have taken out a Parent PLUS loan, there is no grace period. For the federal student loans, you need to start making those monthly payments when your grace period expires. In addition, the interest that has been accruing on your loan will now be lumped in with your balance. Moving forward, interest would now be charged on the total amount.
Do You Pay Interest During the Grace Period?
This depends on whether you have a subsidized loan or an unsubsidized loan. Subsidized loans do not accrue interest during the grace period. So the amount you borrowed is the amount you will owe when it comes time to start making payments.
On the other hand, with unsubsidized loans, interest continues to accrue during the grace period. Now, you are not required to pay anything during the grace period, but it would be financially smart to try and pay off the interest that you have accrued. This will help stop the interest on your loan from capitalizing (this is when all the accrued interest over the course of your loan term gets lumped in with the principle) which will cost you more money in the end. Try sending in monthly payments that cover the interest. You can contact your loan provider to see how you can set this up.
What is forbearance?
Thanks to the CARES Act, all federal student loans have been put into forbearance until Sept. 30, 2020. This also acts as a grace period where you do not have to make any payments. The difference between forbearance and the grace period is that the interest rate is 0% for that time period. So for example, if you graduated this past June, you don’t need to make payments until December. Furthermore, you will not accrue interest until after September.
This forbearance is really something to take advantage of. It can help your financial future greatly if you can commit to making payments during this time. Get a side gig and really follow a strict budget so you can pay down as much interest as you can.
Five Steps To Take To Start Paying Down Your Student Loan Debt
Know how much money you owe
Organizing your student loan debt is the first step in putting together a payment plan. If you have taken out multiple student loans over your college career, this is even more important to do. You want to make a list of all your loans along with the interest rate for each and who the loan servicers are.
Next, you want to break down the total debt into smaller increments. So, if you owe $25,000 in student loan debt, you want to know how that looks broken down into months and weeks. If you were looking to pay it off in 5 years, that looks like $416 per month or around $104 per week. This helps your brain see this debt as more realistic to accomplish than one big total.
Come up with a repayment plan
When you graduate from college, you are automatically enrolled in the Standard Repayment Plan. This plan calculates payments based on a 10-year repayment schedule. During this pandemic, you may find yourself out of work and struggling to make an income. If this is your case, you may want to look into the income-based repayment plan. The monthly payment for this type of plan is determined by the individual borrower’s monthly income. They will look at your discretionary income and your monthly payment cannot exceed 10% of that. This type of plan can lengthen the repayment time and depending on how much you owe, you could be paying for as long as 25 years. This means you will wind up paying more in interest.
Whatever student loan debt repayment plan you go with, you can expect both pros and cons to each. Your current financial situation will determine which plan is right for you. There are also other student loan forgiveness options to check out.
Make More Money With a Side Gig
Side gigs are all the rage right now. If you are in need of extra cash, there is a side gig out there for you. From becoming an Uber driver to helping people on TaskRabbit, there is definitely options out there that can help you make some extra cash. There is also the option of selling your own services. If you are the crafty type, start a shop on Etsy. If you are handy, create a profile on Thumbtack. There are also freelance work sites like Fiverr and Upwork.
Cut Way Back
There are so many small expenses that really add up over time. You may not think you are spending too much extra money on things but if you are getting takeout or hitting the Starbucks drive thru, I guarantee you that you are spending more than you think. If you don’t have a budget set up, now is the time to create one. You need to understand where your money is going before you can get a handle on it.
Once you have a budget set up, you can see where you can start cutting back. Are you using your gym membership? Are you using your Netflix subscription? Once you have gone through your budget and figured out where you can cut back, use those savings to put towards your debt.
See If Refinancing Your Loan Makes Sense
If your credit is good, speak with your lender to see about refinancing your student debt. Refinancing can get you a lower interest rate and better repayment terms. Before speaking with your lender, come up with a timeframe for paying off your student loan debt. If five years is your magic number, see what your payments would be. You just may be able to make it work.