- December 7, 2020
- Posted by: Carter Davis
- Category: News
Nobody wants to think about their student debt or how much interest it’s accumulating, but there comes a time when you need to think about how to start taking chunks out of it. Leaving your federal student debt unpaid can lead to dire financial consequences and damage to your credit score. Paying off your student loan debts perfectly is nearly impossible—everyone comes from different walks of life and begins paying their loans in different ways. If you’re unsure how to begin paying off your federal student loans but you want to reduce the total amount of debt, we have some good ways to reduce your federal student loan debt for new borrowers and for those who have had their debts for a while.
Start Paying While You’re Still in School
If you’re still attending school, you can begin paying off some of your loans to lower the amount of interest that accrues. This is especially important when you have unsubsidized student loans, which begin accruing interest as soon as you get the money. The lender will pay off the interest for subsidized loans while you’re in school. Money may be scarce while you’re in college, but if you have any to spare towards your loan, you’ll lower the total amount you owe.
Make Payments on Time
It may seem obvious, but paying your loans in a timely manner will lower the amount of accrued interest—saving you money in the end. Letting loan payments default and not paying them off will reflect poorly on you, and it can cost you more as defaulted payments pile up. If you’re able to, always pay your loan repayments on time. When you encounter a problem with a payment that’s too much to pay off, consider switching to an easier repayment plan for lower payment amounts. However, be aware that a greater amount of interest builds up with lower monthly payments.
Pay a Little Extra Each Payment Period
Once you’re on your feet and have money to spare at the end of a payment period, you can begin paying a little more than your minimum repayment amount each month. Lowering the total amount of your loan will lower how much interest you accrue. You do not need to pay extra every month—tough financial situations can happen in any month—but if you can afford to pay more than normal occasionally it can save you money in the long run.
Make Payments Directly for Interest
Similar to paying a little extra each month, consider paying off chunks of your accumulated interest separately from your loan payments. Interest tends to sneak up on borrowers, especially those who are paying smaller monthly amounts due to financial instability or due to an income-based loan repayment program. When you’ve been paying your loan bit by bit and ignoring the accumulating interest, you may find that you need to pay off a large additional sum. Knock out some of your interest with a separate payment, and you’ll lower how much accumulates in the future. Doing so may help you recover from out-of-control federal student loan debt.
Pick the Best Federal Loan Repayment Program
There are many different ways to pay off a federal student loan, and you may not be on the best repayment plan for your financial situation. Monthly loan payments that are too high, which may result in defaulted loans, can signal that you desperately need to switch your repayment program. If you’re in a sticky financial situation but you can see that it will clear up in the future, consider a graduated repayment plan that will raise your monthly payment when you can afford it and lower the monthly payment now, when you can’t.
The opposite situation is also common—you make more than enough money to pay off your loans, but you’ve gotten comfortable only paying off a small amount of your loans each month. You can opt into paying extra off each month, but you may also decide to switch to a standard repayment plan that will allow you to pay faster and accrue less interest. You should consider this option when your income-based repayment plan is as much or more than the amount you would pay in a standard plan.
Take Advantage of the Administrative Forbearance
When the COVID-19 pandemic first began in March 2020, the government passed the CARES Act, which included a one-time $1,200 stimulus check and an administrative forbearance on all federal student loans. The government applied the administrative forbearance immediately, which set all interest rates to 0% and all monthly payments to $0. The administrative forbearance is currently set to end in January of 2021, but you can still make repayments on your loan without accruing monthly interest. If you’re still in a comfortable financial situation, consider paying a few large optional payments to your student loan provider to eliminate a significant sum of debt.
Consolidate Your Loans
Loan consolidation is one of the ways to reduce federal student loan debt for borrowers who need to pay off several different federal student loans and who no longer wish to make separate monthly payments to all the lenders. Consolidating your student loans will put all loans into one big sum with a fixed interest rate and lower monthly payments. You’ll need to repay your student loan debt for a longer amount of time, but it can be worth it if you have extended financial instability or too many loans with different interest rates. Consolidating your loans works best when you have federal student loan help from an experienced debt relief company such as Hope Credit.
Most importantly, stay on top of your student loans. Don’t forget to update your contact information, address, or income for income-based repayment plan programs. If you have done everything you can to lower your monthly payments or your total student loan debt and it still hasn’t been enough, contact Hope Credit, and we’ll help you find the best solution for your debt.