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Getting stuck with student loans after school hurts. Many borrowers begin to live with stress and anxiety for the fear of loan default as that hits as early as 90 days after graduation.

The good news is, it is not supposed to be that way, with the right strategies and repayment plans, paying off student loans can become a walk in the park.

How so is what we discussed in this blog post for you with 100% assurance if you can just stick by these strategies?

Strategies and Repayment Plans

Strategy 1: Make Extra Payments toward the Principal

One of the simplest and most effective ways to pay off your student loans faster is to make extra payments toward the principal. The principal is the amount of money you borrowed, not including interest. By paying more than the minimum required each month, you can reduce the principal balance and the amount of interest that accrues over time.

To make extra payments, you need to instruct your loan servicer to apply them to your principal balance, not to advance your due date. Otherwise, your extra payment may be treated as an early payment for the next month, which will not reduce your interest charges. You can contact your loan servicer online, by phone, or by mail to make this request.

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Making extra payments can save you thousands of dollars in interest and shorten your repayment term by several years. For example, you have a $10,000 loan with a 4.5% interest which you are supposed to repay in a 10-year repayment term.

Paying an extra $100 every month will save you about $2,300 in interest and help you pay off your loan in just about seven years. Isn’t that smart?

Strategy 2: Refinancing your Student Loans

Another way to clear off your student loans faster is to refinance them with a private lender. Refinancing means replacing your existing loans with a new loan that has different suitable terms, such as a lower interest rate, a shorter repayment term, or both. By refinancing, you lower your monthly payment, save money on interest or pay off your debt sooner.

However, refinancing is not an option for everyone. You must have a good credit score, a steady income, and a low debt-to-income ratio to qualify for refinancing.

You also need to weigh the pros and cons of refinancing federal student loans, which may have great benefits than private loans, such as income-driven repayment plans, loan forgiveness programs, and deferment or forbearance options.

If you decide to refinance, you should research the most favorable offers from different lenders. Compare factors such as interest rates, fees, repayment terms, and customer service.

You should also go for a new loan term that matches your goals. Let’s say, you want to pay off your loans faster, then you should opt for a shorter term than what you have now, even if it means higher monthly payments.

Strategy 3: Use Income-Driven Repayment Loan

For federal student loan borrowers who are struggling to meet monthly payments, you may be eligible for an income-driven repayment plan (IDR). IDR plans to adjust your monthly payment based on your income and family size, making them more affordable and manageable.

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Depending on the plan, your payment could be as low as 10% or 15% of your residual income, which is also known as discretionary income.

IDR plans also offer another benefit: loan forgiveness. If you make consistent payments under an IDR plan for 20 or 25 years (depending on the plan), any remaining balance will be forgiven. However, keep in mind that forgiven amounts may be taxable as income.

To enroll in an IDR plan, you need to apply through your loan servicer or through the Federal Student Aid website. You will need to provide information about your income and family size and recertify them every year.

There are four IDR plans you can choose from: Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), or Income-Contingent Repayment (ICR).

Choosing an IDR plan is helpful in lowering your monthly payment and qualifying for loan forgiveness, but it may also come with an increase in the total amount of interest you pay over time.

This is because IDR plans extend your repayment term and may result in negative amortization, which means that your principal balance grows instead of shrinks due to unpaid interests

Repayment Plan: Standard Repayment Plan

The Standard Repayment Plan is the default option for most federal student loans. Under this plan, you pay a fixed amount every month for up to 10 years (or up to 30 years for consolidation loans).

The Standard Repayment Plan is suitable for borrowers who can afford their monthly payments and want to pay off their loans as quickly as possible.

The merits of the Standard Repayment Plan are that you will pay less interest and be debt-free sooner than other plans while the demerits are that your monthly payment may be higher than other plans and that you will not be eligible for loan forgiveness.

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Repayment Plan: Graduated Repayment Plan

The Graduated Repayment Plan is similar to the Standard Repayment Plan, except that your monthly payment starts at a lower rate and increases every two years.

The Graduated Repayment Plan is designed for borrowers who expect their income to grow over time and can afford higher payments later.

The advantages of this payment plan are your initial payment may be lower than the Standard Repayment Plan and that you will pay off your loans in the same time frame as the Standard Repayment Plan and it disadvantages are that you will pay more interest than the Standard Repayment Plan and that you will not be eligible for loan forgiveness.

Repayment Plan: Extended Repayment Plan

The Extended Repayment Plan allows you to extend your repayment term up to 25 years, with either fixed or graduated payments.

The Extended Repayment Plan is most suitable for borrowers who have more than $30,000 in federal student loans and need much lower monthly payments.

The advantages are that your monthly payment may be lower than the Standard or Graduated Repayment Plans and that you can choose between fixed or graduated payments while the disadvantages are that you will pay more interest than the Standard or Graduated Repayment Plans and that you will not be eligible for loan forgiveness.

You can always beat the anxiety and fear of loan default with the right strategies and payment plans when you encounter problems with paying student loans.

Make extra payments, refinance, or use the Income-Driven repayment plans to beat the odds and live a full debt-free life after graduation


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