When it comes to money, one thing is certain: there’s no one-size-fits-all solution. This is especially true when it’s time to pay off your student loans.
How exactly are you supposed to decide what payoff strategy is best for you in a world of so many options?
Making that determination can be tricky, for sure. But we can help! If you’re trying to decide which student loan repayment plan is going to work for your situation, here are the questions you need to ask yourself.
How to pick the best student loan repayment plan
1. Do you work in public service?
This is a multi-layered question. If you work in public service, you may be eligible for Public Service Loan Forgiveness (PSLF). To qualify for PSLF, your employer must fall into one of these categories:
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
- Any local, state, federal, or tribal government organization
- Certain not-for-profit organizations with qualifying public services
- Certain volunteer organizations, like the Peace Corps and AmeriCorps
If your employer qualifies and you expect to work for them full-time for at least 10 years (see these surprising requirements for PSLF), your best bet is probably to consolidate eligible loans through the Federal Direct Consolidation Loan program and get on an Income-Driven Repayment plan.
Make sure you certify your payments each year to ensure they count toward forgiveness.
2. Are you having trouble making payments?
If you current income isn’t enough to support your monthly student loan payments, consider an income-driven plan such as IBR or REPAYE.
These programs cap your monthly payment as a percentage of your income. It’s even possible to qualify for a monthly payment of $0 (however, keep in mind that interest may still accrue and roll into your principal balance, depending on the program).
Plans like ICR and REPAYE are tricky in these circumstances because there’s no cap on the monthly payment amount, so you could end up paying more per month than you would have under the Standard Repayment Plan. Of course, if you’re in that situation, making the monthly payments shouldn’t be a problem as long as your other budget categories aren’t out of control.
TL;DR: If you are having trouble making payments and don’t qualify for PSLF, but do qualify for IBR or PAYE, sign up. If your only income-driven options are ICR or REPAYE, proceed with caution — especially if you expect your earning power to increase rapidly.
3. What payoff style motivates you?
If you have multiple loan balances with multiple lenders, then your personality can play a large role in selecting the best student loan repayment plan. For example, will you opt for the debt snowball or the debt avalanche?
Under both methods, you pay the minimum on all loans except one, where you funnel all your extra payments. If you choose the snowball, you direct extra funds to the loan with the smallest balance first; if you pick the avalanche, those funds are put toward the loan with the highest interest rate. The former is for those who need a quick win, and the latter for those who want to pay the least interest over time.
On the other hand, if having so many accounts (and due dates!) drives you crazy, consolidating or refinancing might be the best choice for your sanity. Fewer monthly payments means less to track, and less likelihood that you’ll make a mistake.
4. Are your loans federal, private, or a mix of both?
Federal loans come with a variety of benefits like PSLF eligibility, access to IDR plans, clear guidelines for deferment and forbearance, and more.
However, it’s currently impossible to lower interest rates for federal loans. To lower your student loan rates, you’d have to refinance through a private lender — which means permanently giving up those federal loan perks, since the new loan is a private one.
If you went through a private lender to fund your education, not only do your loans not come with federal benefits, your interest rate may be double-digits high and your customer service experience may be somewhat … lacking. In that case, refinancing with a reputable private lender may help lower your interest rates and monthly payment as well as improve your experience with your servicer.
Check out our list of top lenders to see how much you could save.
If you’ve got a mix, it may be best to keep your federal loans federal and your private loans, well, private. Remember that while you can refinance all your loans into a single account with a private servicer, you don’t have to. Simplicity is attractive, but it doesn’t always save you money when it comes to student loan repayment strategies.
5. Do you anticipate a major life event in the near future?
If you’ve got a big milestone on the horizon — like getting married, buying a house, or having children — then anticipate as best you can how your financial situation will change as a result.
The student loan repayment plan that seems best for you today may not be ideal for the long haul. And while sometimes changes in your life are unexpected, if you can predict them then it seems silly not to plan accordingly.
Of course, there are many more questions you could ask yourself when trying to identify the best student loan repayment plan. However, if you answer these, then you’re off to a strong start. Good luck!
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|