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How To Adjust Your Student Loan Repayment Plan For 2021

Kim Porter  |  January 26, 2021

A look at what to do if you want to finally pay off your student loans, refinance your student loans, or apply for income-based repayment.

If you have student loans, you might have gotten a break in 2020. The federal government, a handful of states, and dozens of student loan servicers stepped in to provide relief to student loan borrowers as the coronavirus pandemic clobbered the economy and put millions out of work. The “pause” on federal student loan payments was due to end on Jan. 31 — just a few days from now — but just after Biden’s inauguration, he extended the suspension of those payments through September 30, 2021

If your payments were suspended, reduced or altered in some other way, it might have put some breathing room in your budget. But none of that changes the fact that you probably want to get out of debt as soon as you’re able. Any amount of student debt can deal a crushing blow to your budget — the average student loan borrower has $38,792 to pay down. No matter where your balance is, here’s a look at how to rethink your student loan repayment strategy. 

Refinance your student loans

Best if: You have a private student loan and strong credit.

Refinancing a student loan is like a debt do-over: You take out a brand-new private student loan, use the proceeds to pay off the old debt, and pay down the new loan over time. If you qualify for an awesome deal, then you could shrink your monthly payment and save money on interest. 

For example, refinancing a $39,000 student loan from 7% to 3% would save you $76 each month and more than $9,000 overall in interest, assuming a 10-year repayment plan.

If your student loan interest rate is above 5% and you have a good credit score, “that would be the best time to apply for a refinance through another bank,” says Pamela Rodriguez, a certified financial planner. “Interest rates right now are at an all-time low, so ask yourself: ‘Am I paying too much for this loan?’”

Here’s the catch: You’ll need to consider the type of student loan you have before making this move. With federal student loans, refinancing might not make sense because you lose a bunch of valuable protections in the process, Rodriguez says. On the other hand, if you already have a private student loan and you qualify for a lower interest rate, then refinancing is a no-brainer.

If you decide to refinance, then start by getting quotes from multiple lenders. Rodriguez recommends getting a fixed-rate loan because “you just never know when the environment is going to change, and you don’t want your payments to fluctuate.”

As you gather quotes, compare these details: 

  • Loan amount: Make sure it’s enough to cover your student loan.
  • Annual percentage rate: This is the interest rate plus any fees the lender charges. The lower the APR, the more money you’ll save on interest.
  • Loan term: How long will you be paying down the new loan?
  • Lender’s reputation: Investigate the lender using the Consumer Financial Protection Bureau’s Complaint Database, Better Business Bureau and online reviews.
  • Other details: Does the lender charge fees? Does it offer hardship programs, which can help if you encounter financial trouble later on? 

Apply for income-based repayment

Best if: You have a federal student loan and want a lower monthly payment.

With income-based student loan repayment, your monthly student loan payment is based on your income and family size. The loan term is spread over 20 to 25 years—instead of the 10-year repayment offered on a standard plan—which drives down your monthly payment. As of last year, 2.75 million federal student loan borrowers are enrolled in income-based repayment.

“If you have not gone into an income-based repayment plan, I think 2020 will kind of give you a push to do it,” Rodriguez says. “It ends up providing a more manageable payment because it’s tied to how much you’re making.” 

Take a few minutes to work with the Department of Education’s loan simulator. Once you enter some basic information, you’ll find out which repayment plans you can use, how much your monthly payment will be, and how much interest you’ll ultimately pay.

There’s a lot you can do with the extra room in your budget. You can pay more toward the student loan whenever you want, or you might choose to pay down other debts with high interest. “It may be beneficial to pay more than the minimum payments toward the higher-rate debts first,” says Mark Schrader, a financial planning strategist at TIAA. 

Putting the money toward your mental health, such as therapy sessions, could also be a good way to get ahead. 

Pay off your student loans

Best if: You have the income to pay your student loans.

Millions of borrowers haven’t had to make a student loan payment in months, and for federal student loan borrowers, that will continue until September 30, 2021, following President Biden’s executive order to extend the pause. 

But just because you can stop paying your student loans doesn’t mean you should stop your student loan repayment, especially if you’ve set a goal for yourself to get out of debt by a certain date. If you’re still bringing in income right now (and possibly saving money, due to no vacations being taken, no birthday dinners being celebrated, etc.) then don’t lose sight of your overall debt repayment strategy. And if you’re looking to get on a payment plan that would let you pay off your student debt even faster, we’ve got five ways to do that at HerMoney.com. 

And, yes, during his campaign, President Biden proposed cancelling at least $10,000 in student debt per borrower, but there’s no way of knowing if or when that would ever pass. In other words, if you have the money, it’s always best to move forward with your loan repayment strategy. 

Setting goals and creating a debt pay-off plan will help. Here are the basics:

  • Check your debt balance. You can find this on your most recent billing statement or by calling your loan servicer. 
  • Go over your budget. Find out how much you earn each month and how much you spend on the essentials, like housing, utilities, groceries and minimum payments on debts.
  • Crunch the numbers. Subtract your bills from your income to see what’s left over. Each month, you’ll put this amount toward your student loan. 
  • Make a goal. Based on your student loan balance and your extra payments, how long will it take to pay off your debt? For example, if you have a $10,000 student loan and you can pay $500 extra each month, then you’ll be debt-free in less than two years.
  • Get to work. Stick to your debt pay-off plan. You can also use any windfalls—like tax refunds, bonuses, or stimulus checks—to zap more of your student loan principal. 

You might need to cut back in some areas to really tackle your student loans. 

“A lot of self-reflection is involved with finding that extra cash in your budget,” Rodriguez says. “Look through your expenses and get real with yourself about the things that you actually need versus you just wanted or you were doing mindlessly.” 

What if I can’t pay my student loan bill?

If you’re enrolled in a student loan forbearance program but are still struggling, “first review the options and terms of the forbearance agreement and determine whether it has a specific restart, or if there are options for extension,” Schrader says. “Then, evaluate your personal situation. If the circumstances are still in place that made forbearance necessary, give yourself time within the terms or work with your lender.”

You can also watch for upcoming relief programs, as the incoming administration is expected to continue to be friendly to student loan borrowers, Schrader says. You may also benefit from talking with a certified credit counselor, who can look over your budget and help you come up with a solution. We also have an-depth rundown on the 8 steps you can take if you’re struggling to pay your student loans. The most important thing to keep in mind is that you have options—the best one for you depends on your personal situation. 

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