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Money Guide: Managing student loan payments

Do you have a game plan for repaying your student loans? We spoke with an expert to break down the best options for you.

GRAND RAPIDS, Mich. — This Wednesday marks one week until the pause on student loan payments comes to an end. President Joe Biden could extend the moratorium for a seventh time, but that has yet to be seen. Regardless of what the president decides, most borrowers still need a game plan for repaying their student loans.

The first thing you should do is remind yourself who your loan servicer is and how much you owe. If you’re unsure, check online at StudentAid.gov. Once you have that information, see what your monthly payment is. Even though interest has not been accruing, you still need to understand what your monthly payments are.

One way to save money is by automating your student loan payments. By putting your loan on “auto debit,” you get a discounted interest rate of 0.25%. The key here is making sure you have enough money to make the payment each month. 

Another option is federal consolidation.

“That’s going to take all of your loans, it's going to make it one single loan, extend your repayment term, but with the extension and repayment term, it's going to lower your monthly payment,” said Mary Jo Terry, Managing Partner at Yrefy. “Most of us are thinking ‘well, we don't want to pay longer, we want to pay shorter.’ But keep in mind, there's no prepayment penalty, so what you are making today is maybe a little bit lower than what you're going to make in the future. We also might be in a different economic situation. So consolidation might be a good option.”

There are also income-driven repayment programs. This gives you a monthly payment you can afford, based on income, household size and so on. One option for low-income folks is economic hardship deferment, which allows you to stop making payments for up to three years, so you can establish your career and increase your earnings. But to be eligible for that, you have to meet a certain criteria. 

Some people might also want to look at private education loans.

“I know we focus a lot on federal, but with a rising interest rate market, if you want to see if your loans are in a variable rate situation, then maybe refinancing them into a fixed rate loan might be the best option,” Terry said. “Quarter percent auto debit applies to both your federal and private loans. So let's try to get you into repayment, even if it just reduces it a little bit.”

Her final advice – don’t procrastinate. Go ahead and figure out how much you owe, then pick a program that’s best for you. And don’t hesitate to speak with your loan servicer. All the information is free.

Here’s one more thing to keep in mind: Regardless of the option you choose, make sure you don’t default on your loan, because that will end up costing you more in the long run, and it affects your credit.

For more ways to manage your student loan payments, click here.

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