It takes a lot of planning, intuition, and foresight to determine how much you should be putting towards your student loan debt.
After all, it all comes down to your personal situation: how much you’ve borrowed, what your degree is in, and what kind of salary prospects await you in the years following graduation.
But just how much is too much to pay towards your student loans each month, and what happens when it becomes evident that you’re overpaying?
How much is too much for student loan payments?
Ask yourself if you’ve been able to comfortably pay off your loans. Have you had too many months in a row where you’ve struggled to make your payments and fit in other expenses with ease? Are your payments skewing your budget?
Say you’ve got a standard subsidized loan for $30,000 with a 6% interest rate, and a 10-year/120-month amortization period. Based on this information, you’ll be paying about $333 per month on a standard plan, or about $190 on a graduated repayment schedule. Increase your loan amount to $50,000 borrowed with the same 6% APR, and you’ll owe about $555 monthly on a standard repayment plan, or $317 graduated.
Now, if you’re a recent college graduate with an entry-level salary — $35,000 to $40,000, for example — it’s already clear that you might be spreading yourself way too thin to make those payments in full and on time, especially when you’ve got other monthly expenses to go around. Sure, you might get a pay increase in time, but will it be enough to make a difference in your debt burden?
Many financial experts tout the 50/30/20 rule when it comes to budgeting, where one allots 50% of their monthly take-home pay to these fixed expenses, 30% on non-necessities like shopping and hobbies, and 20% on goals like saving for retirement or building an emergency fund.
On an entry-level salary, assume you’ve got $2,000 in monthly net income. Half of that — $1,000 — should be devoted to expenses like your rent or mortgage, car payment, utilities, and other regular bills.
Estimate your rent at $800/month, a $150 auto loan payment, and $50 in gas/electric bills, and that’s your whole allotment right there. Not a whole lot of wiggle room for fitting in a student loan payment … at least not without dipping into the rest of your income, leaving little left over for saving or any discretionary spending.
You might not have a car payment, for one, but replace that expense with a student loan payment, and you’ve got nothing left over to save for a car should you need one in the future. And unless you want to spend 75% or more of your income on bills, that’s not a very financially savvy way to live.
Evaluate your budget and crunch some numbers. If it’s clear that your student loans aren’t a seamless fit, consider some alternatives to lessen your debt burden if you feel you’re paying too much.
Lower your student loan costs
1. Refinance your loans
Refinancing the terms of your loan can help reduce your payment with a new, lower interest rate and reconfigured terms. Imagine if you could drop your APR a point or two, and extend the repayment terms on your loan — both can make a significant difference in how much you’ll owe each month to your lender. If you’ve got several loans, consolidating them into one brand new loan with better terms can also help fit your payments into your budget.
Use the calculator below to see if refinancing could save you money.
2. Get on an income-based repayment plan
An income-driven plan limits the amount of income paid towards your federal loans every month. Under income-based repayment, or IBR, payments require no more than 10 to 15% of your income over a 25-year repayment period. Pay-as-you-earn is another option, typically a 20-year plan and 10% of your income. An income-contingent plan is also a variation of IBR; here, you’ll owe no more than 20% of your income over 25 years.
3. Apply for a deferment or forbearance
If your payments are simply too much to handle, a deferment, like its name says, temporarily defers your loan principal and interest to a later date until you get your finances back on track. A forbearance is similar, only you’ll continue to accrue and owe interest even if your payments are halted.
4. Adjust your budget
Maybe it’s not your student loan payments that are too high, but your budget that’s out of whack. Start delving into your budget: Is there anywhere you can make tweaks, cuts, or adjustments to better fit your student loan payments into the mix?
Try moving to a cheaper apartment or finding roommates to free up some money. Limit how often you eat at restaurants. Can you give up some luxuries, like a cable subscription or gym membership, for the time being? Are there ways to make extra cash on the side?
Take a good look at your income and expenses — money coming in and going out — and be realistic about what your wants and needs are. Finding this proverbial “wiggle room” in your budget can make even a small difference in managing your loan debt.
Learn more about budgeting here.
5. Seek student loan counseling
If it all seems too much to tackle on your own, consider consulting a student loan counselor to help organize and map out a plan to reduce your student loan debt load. The right counseling service can help you build a budget, identify your financial goals, and organize your loans so they become manageable without having to skimp on your payments or other expenses. A certified, legitimate counselor can also aid you in communicating with your lender when pursuing some of these alternatives.
Ultimately, there’s no one way to go about it. Take some of these suggestions and come up with some creative ways of your own to free up your budget and pay off your loans with less difficulty. Remember that there is a light at the end of the tunnel. Your student loans won’t last forever, and with the right steps in place, may not be a part of your financial life longer than they need to be.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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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 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% 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 email@example.com, 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% – 5.87%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|