Which Student Loan Repayment Strategy Is Appropriate for You?

Donald F. Morgan, AIF®,CPFA® |

When it comes to repaying your student loans, one size does not necessarily fit all. The key to a manageable repayment plan is to find a strategy that works well for your goals, budget, and lifestyle. Here are some questions to help you assess a student loan repayment plan for your situation.

Is Refinancing Always the “Best” Option?

Although refinancing may be a great way to lower your interest rate, consolidate multiple loans into one simple payment, or extend your loan term and lower your monthly obligation, there are some situations in which refinancing may be a bad idea.

For example, if you hope to obtain loan forgiveness under the Public Service Loan Forgiveness (PSLF) program, refinancing from a federal loan to a private loan could leave you ineligible. Consider all your options before choosing to refinance.

Does Autopay Come With Benefits?

Setting up automatic payments for your loans does sometimes lower your interest rate or eliminate other fees or charges. Check with your servicer to see whether they offer any autopay benefits.

Should You Avoid Capitalized Interest?

When you capitalize interest, it's added to your loan balance—which means you're paying interest on top of interest. For non-subsidized federal loans and many private loans, interest accrues while you're in school or in forbearance. Paying this interest (even if you don't touch the principal balance) may lower the amount you might pay for interest later.

Can You Be Penalized For Making Extra Payments?

Most student loan servicers won't penalize you for making more than the minimum payment or paying off your loans early. However, some servicers may use any extra payments to advance the due date for your next payment, which won't necessarily help you pay down your principal balance any faster. To ensure that extra payments lower your loan balance, instruct your servicer to apply these payments to your principal, not next month's payment. Also, be sure to check with your servicer to ensure there aren't any penalties for prepayment or early loan payoff.

To pay down your student loan more quickly, you may opt to make payments biweekly instead of monthly, pay an extra lump sum each month, or—for those paid weekly or biweekly—apply the occasional "extra" monthly paychecks toward your loan balance.


Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  

This article was prepared by WriterAccess.

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