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 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.34%4||Undergrad & Graduate|
|1.97% – 8.54%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 2020, 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 10/26/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
5 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 11/13/2020 student loan refinancing rates range from 1.97% to 8.54% Variable APR with AutoPay and 2.95% to 8.77% Fixed APR with AutoPay.