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Student Loan Debt Repayment Options

Concerns about repaying student loan debt are one of the most common reasons young professionals mention when seeking financial advice in my practice.  There are many strategies that can be implemented to help save money over the long term and to pay off loans earlier so that money can be redirected to purchasing a home or paying for a wedding.

One of the easiest ways to save significant money on repayment of your loans is to pay the accrued interest on the loans during the six month grace period after graduation. Many loans begin accruing interest when disbursed, and the accrued interest, if not paid before the grace period expires, is added to the balance of your loan. 

Experts recommend students try to pay at least some of the debt before the grace period ends—if possible, even while still in school and even if it is only a few dollars a month. Paying some money before it is due doesn’t alter the grace period, and it can make a significant difference in the total amount due.

Here’s an example courtesy of Sallie Mae, a private student-loan company. Assume a student has a loan with a current balance of $10,000, at an interest rate of 8.0% and a repayment term of 10 years.

If the student pays the amount due every month, he or she will make 119 monthly payments of $121.32, with a final payment of $119.89, for a total payment of $14,556.97. However, by paying an extra $20 a month, it becomes 96 monthly payments of $141.32 with a final payment of $7.10. The student would pay off the loan in eight years and one month—about two years earlier than with the standard repayment term—and save $983.15 in the process.

There are other strategies that can be used as well.  Consolidating your loans can make it easier to make just one payment per month instead of paying on multiple student loans.  It is also possible to refinance your student loans, and if you have good credit, or have a good job and education,  you may be able to obtain a lower interest rate, resulting in lower payments which can generate significant savings over the life of the loan. 

It is also important to determine if income based repayment plans make sense for you, or if you are eligible for any loan forgiveness plans.

I would love to learn more about your unique situation and to provide you with options for a more effective student loan repayment strategy.