How to Pay off Student Loans: A Payment Plan Guide

Student loan debt has climbed to $1.5 trillion in private and federal loans, with the average debt being over $35,000. Some medical degrees have students leaving school owing in the six-figures.

The idea of college has always been sold as part of the American dream. Students are encouraged to go to college. If their families can’t afford to pay for it, they take out student loans.

A lot of times they aren’t clear on how to pay off student loans after they graduate or leave school.

It doesn’t take long for the debt to add up. Students who attend a community college before registering at a four-year university may end up borrowing more. Add on graduate school and a doctoral program, and the loans only increase.

Are you concerned about student loan debt when you finish college? Keep reading for a payment plan guide to pay-off your student loan debt.

Always Know How Much You Owe

It’s easy to lose track of how much you owe in student loans. College students accumulate loan debt as they progress through school. Each semester they can take on more than one new loan.

A student’s enrollment plays a pivotal role in how long they have until their loan repayment begins. Students taking the minimum required hours to receive financial aid could take six years to graduate. Postgrad studies can add another six to eight years.

During this time, the student should pay close attention to financial aid documents they receive. These documents show the amount borrowed and the accumulating interest on each loan.

When you see the balances rising, reconsider your need to take out extra loans.

Understand How to Pay Off Student Loans Before They’re Overdue

Many college graduates are stunned when it comes time to pay back student loans. They simply had no idea their monthly payments would be hundreds of dollars per month. Some students are shocked to learn their student loan payments are higher than their monthly rent.

Understanding your debt and monthly payment before graduation will help you prepare. You’ll know how much money you need to earn after graduation for living expenses and your loan repayment.

It is a good idea to consider getting a part-time job to start paying off older loans before you graduate.

Know Your Repayment Options

After a student graduates or stops attending class, there is a six-month grace period before repayment begins. During this time, borrowers need to look into the repayment options that are available.

Here is a quick glance at how to pay back student loans:

Private Loans

If you borrowed from a private lender, your terms and conditions may differ from a federal student loan. It is important that you know the difference. Private lenders set their own rules and are less likely to work with borrowers.

With a federal loan, you will receive a traditional 10-year repayment plan. The government will work with individuals struggling with repayment.

Borrowers with high loan totals could easily have monthly payments in excess of $1,000 a month. If this happens with a federal loan, you can select from several options to lower your payments.

Income-based

Income-based is a repayment plan geared toward individuals in low-income brackets. It also applies to those facing financial hardships.

The monthly payments will not exceed 15% of their discretionary income. This is the money left after rent, utilities, and taxes are paid.

Income-Contingent

Calculated based on your current income, this plan extends the repayment period up to 25 years. In the long run, you will pay substantially more interest. The remaining balance at the end of the loan term will be forgiven.

Pay As You Earn

Pay As You Earn or PAYE is how to pay back student loans when you’re facing financial hardship. The danger in this type of repayment plan comes at the end of the repayment period.

Borrowers will have 20 years to pay on their loan based on 10% of their discretionary income. Like the income-contingent loan, any remaining balance will be forgiven.

Unfortunately, loan forgiveness is considered taxable income. The IRS could — and most likely will — send you a hefty tax bill that could create a new hardship.

Revised Pay As You Earn

The RPAYE is when your financial circumstances change and you revise the conditions of your bad credit loan repayment plan. To avoid a large tax bill down the road, you should revise your terms based on increases in your current income.

Try to Consolidate Your Loans

For borrowers with loans from a private lender, consider consolidating your student loan debt. With debt consolidation, you combine multiple student loans into one lower monthly payment.

It is possible that a borrower making multiple monthly payments will fall behind and experience a financial setback. The inability to repay student loans can ruin your credit.

If you think bankruptcy will fix the problem, think again. Student loan debt cannot be dissolved in bankruptcy. This could ruin your chances of owning a home, buying a car, or ever having a credit card.

Make Your Payments on Time

To maintain your credit, pay your installment loans on time. If you get a high-paying job, that shouldn’t be a problem. For those who do not see a huge jump in their salary, do what you can to reorganize your debt.

If you experience financial hardship, contact your lender immediately. Your wages and tax refunds can be garnished. The government can also garnish your retirement income and seize your property for unpaid loans.

Estimate your payments with the federal student loan repayment estimation calculator.

Was This Guide Useful?

Knowing how to pay off student loans before they’re due is important. Having a game plan in place when that day comes can alleviate a lot of stress.

Do you have more than one personal loan or credit card making it hard to pay your student loans? Consider a debt consolidation loan to get one smaller monthly payment and reduce debt faster. Click here to learn more about available personal loan options.