Guide to Student Loan Repayment: Strategies, Options & Pitfalls to Avoid
This guide explores the best ways to pay off student loans, explains repayment options, and highlights common pitfalls to avoid so you may get out of debt as quickly and wisely as possible. This content is for educational purposes only and not a substitute for professional advice.
Quick Navigation to Student Loan Repayments
The Basics:
How to Repay Student Loans:
- 4. Know Your Loans
- 5. Watch Our “Repayment” Video!
- 6. Compare and Consider Different Repayment Plans
- 7. Forgiveness, Forbearance, and Deferment
Avoiding Pitfalls:
Tips for Repayment:
Graduating from college, university, or a vocational school like Epic Flight Academy is a major milestone. However, for many students, it comes with the burden of student debt. Whether you took out federal, government-subsidized, or private student loans through institutions like Sallie Mae®, understanding how to pay back what you owe responsibly is critical to your financial future.
Types of Student Loans:
Federal vs Private Student Loans
First of all, understand the type of student loan you are borrowing. If you already have a loan and don’t know, find out. This makes a difference in how easy it is to repay them. Federal Student Aid is the country’s largest student loan provider.
1. Federal Student Loans
Subsidized loans: A Federal Direct Subsidized Loan is a student loan for college undergraduates with financial need. In fact, the U.S. Department of Education pays the interest while you’re in school at least half-time, during the grace period, and during deferment. This helps lower the total cost of the loan.
Unsubsidized loans: Interest accrues from the moment the loan is disbursed. An unsubsidized student loan is a federal loan where you’re responsible for all the interest from the time the loan is given until it’s fully paid. Unlike subsidized loans, the government doesn’t cover the interest while you’re in school or during grace and deferment periods. The U.S. Department of Education is the actual lender for federal student loans. They contract with companies like Nelnet to handle the day-to-day servicing of these loans.
2. Private Student Loans
These are offered by banks or other lenders. Interest rates vary and are often higher. Also, they offer fewer options for forgiveness, deferment, or repayment assistance. Epic works with a variety of private lenders, including Sallie Mae®, Stratus Financial, and others.
When do student loan payments start?
- Federal loans typically have a 6-month grace period after graduation.
- Private loans may have different terms. Check with your lender.
Always confirm your specific repayment start date with your loan servicer contact. You’ll feel great making that first payment on time.
How is interest calculated on student loans?
Understanding how interest accrues on student loans is crucial. Interest builds daily based on your loan’s interest rate and balance. With unsubsidized loans, this happens while you’re still in school unless you make interest-only payments. Most importantly, know whether your interest is fixed-rate or variable.
Federal loans are fixed rates, but private lenders use both fixed and variable.
You may choose to use an online student loan calculator to determine payment amounts, evaluate payoff options, and estimate the balance owed.
Know Your Loans
- Understand the type of loan you have – federal or private.
- Use a repayment calculator to see monthly payments under various plans.
- Log in to your FAFSA loan repayment portal for federal loan info.
- List your loan servicer contact details and due dates in your financial plans.
- Don’t borrow more than you think you can afford to pay back. Determine the best debt-to-income ratio for student loans in your situation. (A reasonable debt-to-income (DTI) ratio for student loans is generally less than 10% of your gross monthly income.)
Watch Our Video on Repayment
Compare and Consider Different Repayment Plans
Federal loan plans include:
- Standard: 10-year fixed payments
- Extended: Up to 25 years, lowers monthly cost
- Graduated: Payments start low and increase
- Income-driven repayment plans (IDR): Payments based on income and debt-to-income ratio
Examples of IDR for federal loans:
- PAYE (Pay As You Earn): Monthly payments are typically equal to 10% of your discretionary income, divided by 12, yet never more than the 10-year Standard Repayment amount.
- IBR (Income-Based Repayment): Monthly payments are typically equal to 10% of your discretionary income, divided by 12.
- ICR (Income-Contingent Repayment): Monthly payments are the lesser of: 1) what you’d pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income, or 2) 20% of your discretionary income, divided by 12.
These are helpful for low-income borrowers or those working in public service.
Private lenders:
In addition to standard repayment, some private lenders offer different repayment plans. However, these differ from federal loan options. Private lenders may offer:
- Interest-only payments
- Partial payments
- Deferred repayment
- Graduated repayment
Also, some private lenders may offer plans similar to IDR, but this is not standard. Check with your lender to choose the best repayment plan for you.
Be careful if you want to lower student loan payments. This typically involves refinancing and could result in you having to pay back more than you originally planned. Paying back student loans should be a part of your personal budget. Do your best to pay on time consistently the agreed upon amount.
Consult a qualified financial planner, tax advisor, or your loan servicer before making changes.
Forgiveness, Forbearance, and Deferment
Forgiveness Programs
- Public Service Loan Forgiveness (PSLF): These are for government and nonprofit employees. The government will forgive the remaining balance after you make 120 qualifying payments.
- Teacher Loan Forgiveness, and other government programs may also apply. We encourage you to research your loan to see if it could be forgiven. Also, some employers will pay off student loans for high-demand jobs.
Forbearance and Deferment
These are temporary stops to payment due to unemployment, military service, or hardship. Interest may continue to accrue, especially on unsubsidized or private loans.
The main difference between deferment and forbearance is how interest is handled. With deferment, interest might not build up on certain loans, like subsidized federal student loans. With forbearance, however, interest always builds up, and it could be added to your total loan amount when the pause ends.
Defaulting on Student Loans
There is a credit impact of student loans if you default or miss payments. However, paying on time is likely to have a positive impact on your credit score.
If you fail to pay your loan in a timely fashion, you run the risk of default.
- This happens after 270 days of nonpayment.
- Default damages your credit.
- Your wages might be garnished.
- Federal tax refunds may be withheld.
Ignoring or Overlooking Your Loan
Approximately 12.5% of Americans have student loan debt, and some 4.86% are in default. However, even more are seriously delinquent. For example, 5.3 million are in default, but another 4 million are late-stage delinquent.
- Stay in touch with your loan servicer contact. For example, log in regularly to your account. Communicate!
- Pay attention to emails or mail about plan changes, eligibility, or missed payments.
- Late or missed payments hurt your credit score.
- You may have to use loan rehabilitation or consolidation as a last resort if you fall too far behind. However, this should be a last resort.
Consolidation and Refinancing
Consolidating student loans could help by making payments easier and possibly lowering your monthly bill. Consult your lender or financial advisor before altering your loan’s structure. Also, this could also mean paying more interest over time or losing access to some benefits, like loan forgiveness programs. Consolidate or refinance with caution! Always consider the total amount of repayment before consolidating or refinancing. Always check eligibility with your loan servicer or advisor first.
Consolidate federal loans to simplify repayment. You’ll get a weighted average interest rate when you do this. However, bear in mind that his could increase the total amount of repayment.
Refinance private loans to lower interest rates, but beware! You may lose federal benefits, such as forgiveness or deferment. Refinancing is likely to increase your total amount of repayment significantly.
It’s wise to request clear, written explanations from your lender before making decisions, especially with regard to the total amount of repayment compared to the original payment plan!
Life Events and Student Loan Repayment
- Death: Federal loans are discharged upon borrower’s death. However, some private lenders may not forgive this debt in the event of your death. Check the terms of your loan so you know where you stand.
- Employment: Choosing a job with loan forgiveness potential, public service, for example, could help you become debt-free faster. IDR plans lower monthly bills to match your employment income. Remember, though, these options are only available for federal student loans. Private lenders do not offer these options.
- Parents: Parent PLUS loans have separate rules. Additionally, parents may consider consolidation, repayment assistance, or even settlement under special hardship cases.
How to Pay Off Student Loans Faster and Smarter
6 Smart Steps to Pay Off Your Loan Faster:
1. Make extra payments. In fact, do this even during the grace period.
Even if it’s just one extra payment each year, it will make a difference.
2. Pay off loans with the highest interest rates first (avalanche method).
This saves you money immediately, which will let you pay off other loans more quickly, too.
3. Use windfalls (bonuses, tax returns) to reduce the principal.
If your grandparents give you cash for your birthday, don’t blow it! Use it to pay down your principal. This may be the best gift you could ever give yourself.
4. Set up auto-pay for discounts and consistency.
This is a great way to make sure you never miss a payment or incur a late fee, which could hurt your credit score.
5. Pay extra on principal. There are no prepayment penalties.
To make sure these extra payments are applied to the principal, you’ll need to specify this with your lender, as extra payments are often applied to future interest or payments if not directed otherwise. Also, follow up to make sure these extra funds are applied directly to the principal. Lastly, do this every time.
6. Explore debt help and budgeting tools. Consider using the Snowball or Avalanche method.
Today, there are many tools available to help you make solid decisions about reducing your debt. Turn this into your new hobby so you are more likely to enjoy a debt-free life!
Information Resources: Where to Get Help
| StudentAid.gov | Federal loan repayment info |
| Loan servicers | Your first line of contact |
| Nonprofit debt counselors | Could help develop a repayment plan |
| University financial aid offices | May offer support post-graduation |
Taking Control of Your Student Debt
So, whether you’re a recent graduate or still in school, making smart decisions about how to pay back your student loans starts with being informed. Know your options, avoid default, and don’t hesitate to ask for assistance. Ultimately, with the right plans, benefits, and payoff strategies, you can regain financial freedom and move forward with confidence.
Epic Flight Academy students have many student loan options. We encourage you to explore loan options and repayment plans to see what works for you. And remember, once you have your loan, consulting a qualified financial planner, tax advisor, or your loan servicer before making changes is always advisable.
Join the Forum Discussion on Student Loan Repayment Below!
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