A college education can open up a world of opportunities for your professional and financial future. But it can also come with a very large price tag, in the form of student loans, that can take years (or decades) to pay off.
While there’s no magic wand you can wave to reduce your student loan debt overnight, you can take steps to start tackling it today.
Read more: How to use Ally Bank’s Spending and Savings Account buckets to help pay down debt
Understand your student loan debt
Often, the best way to get a holistic view of what you owe is to go to the source: your loan servicer (the company that handles the billing of your loan). They can help you determine the following:
Total student loan debt owed
Federal loans or private loans
Interest rate for each loan
Fixed or variable interest rate
Each loan’s repayment terms
Individual monthly payment for each loan
This is also an important time to factor in any other debts you may have, like credit card balances or car loans, so you can build a budget and repayment plan that will truly help you meet your goals.
Explore loan forgiveness programs
The U.S. government offers several programs to help borrowers with federal student loans. Many have specific requirements, so make sure you qualify before applying. For instance, if you’re a teacher you must teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school or service agency, in order to be eligible for up to $17,500 worth of forgiveness.
With the Public Service Loan Forgiveness plan, you may be able to get your remaining loan balance forgiven if you pursue a career in public service and make at least 120 qualifying payments toward your loans. If you find yourself in this situation, you should think carefully about which repayment plan you opt for, since some could help you pay less out of pocket than others.
Consider refinancing or consolidation
If you owe multiple loans to multiple servicers, combining them can make your debt more manageable. This streamlines your monthly payments into a single one, making it easier to keep up with your student debt. Refinancing could also help you lock in a lower rate on your outstanding balance, which means more of your payment goes to the principal each month.
If you have both federal and private loans, you may want to think twice before combining them. Refinancing them together into a new private loan means you lose certain protections associated with federal loans, including the ability to pause your payments temporarily through deferment or forbearance.
Enrolling in autopay is one way to demonstrate responsible borrowing habits while repaying your student loans.
Choose the right repayment plan
Once you know exactly what you owe, you can select a plan to start paying off your debt.
Fixed repayment plan
Fixed repayment plans base your monthly payment amount on how much you owe, your interest rate and a fixed repayment time period. These often have the fastest repayment time and lowest overall paid interest.
Income-driven plan
Income-driven plans are available for federal loan borrowers. With this type of repayment plan, your monthly loan payment is tailored to fit your income. While you could avoid budget strain this way (especially if you’re not making a lot of money yet), your repayment term is often stretched out even longer, so you end up paying more interest in the long run.
Evaluate your payment strategy options
Enroll in autopay
Enrolling in autopay is one way to demonstrate responsible borrowing habits while repaying your student loans. Many federal and private student loan programs even offer an interest rate discount for enrolling in automatic payments. While the discount may only be a quarter of a point, it adds up over time. And by paying automatically, you can also avoid late payments, which could hurt your credit score.
Consider bi-monthly payments
While not expected by loan servicers (you’re only expected to pay once per month), payments made twice a month (or even weekly) allow you to chip away faster at your outstanding balance and the interest that’s accumulating on your loan. Ask your servicer if this is an option for you.
If your lender doesn’t allow you to set up bimonthly payments using autopay, don’t worry. You can schedule your regular payment with autopay to get a rate discount, if applicable, then set up another bimonthly automatic payment from your bank account.
With Ally Bank’s spending and savings buckets, you can create a customized system to simplify your money management and chip away at your debt.
Putting a plan into action
Paying off your student debt can be daunting. But once you’ve equipped yourself with the right tools and a solid plan, you’ll be well on your way to eliminating your debt sooner than you think.
