Factoring Student Loan Repayment Into Your Financial Plan

Most of us were glad that our loans were in forbearance during the pandemic, since this was a tough time in many ways, including financially. And now that we're just getting back on track in terms of work, student loan forbearance is coming to an end, and we're going to have to start making payments again. So it makes sense to do some financial planning and simplify the process of student loan repayment.

Many people are confused about things such as debt consolidation and how much they should pay in terms of monthly payments. Some put their loans on autopay and forget all about them, until they find that that their account is overdrawn! So it makes sense to understand the entire student loan payment process if you want to keep your finances on track. Here are some things to keep in mind:

Federal vs. Private

There are two kinds of student loans, federal and private. There are four kinds of federal loans which are issued by the US Department of Education: Direct Subsidized Loans, which are based on financial need, Direct Unsubsidized Loans which are not based on financial need, Direct PLUS loans, which require a credit check and Direct Consolidation Loans in which all your loans can be consolidated.

Subsidized loans generally have lower interest rates than unsubsidized ones, and federal loans generally have lower interest rates than private ones which are issued by universities and banks. Additionally, there is a 6-month grace period after you graduate for federal loans, but the rules and regulations regarding private loans vary.

Consolidation/Refinancing

Even though your federal loans all come from the US Department of Education, you might have different companies servicing those loans. It can be difficult to keep track of all your different loans and make multiple payments every month. Instead, it makes sense to get all your loans consolidated and make one single payment. This option can also result in a lowering of your interest rate.

When it comes to private loans, refinancing is a good option because it can help to lower your interest rate. You may be eligible for refinancing if you have a good credit score.

Autopay Option

Autopay is a great option for people who have a steady income and don't have to struggle to make all their payments. Plus, if you're the type of person who keeps procrastinating bill payment or just doesn't have time for it, then autopay is a good idea. You basically just set up a recurring payment with your bank and the money is automatically deducted from your account.

Of course, autopay is not a good idea if you are freelancing or temping. If you suspect that you might have a lot of expenses coming up in the future, then you might be better off making your loan payments as and when you can.

How Much Should You Pay?

You should, of course, make your minimum payments on your loans. But if you can pay more, then it makes sense to do so because it will help you to avoid paying more interest in the long run. So if you can afford to pay more, then focus on the loans which have a higher rate of interest and get them out of the way. Your financial advisor can help you to figure out which loans it will be best to focus on more. They can also help you to factor in all your expenses and decide how much to pay every month.

Contact us to understand how to factor student loan repayment into your financial plan.