Jeffery Sparks 
College degrees tend to bring higher earnings; however, many graduates end up carrying significant debt burdens that limit career options and delay life goals.
2023 will be an eventful year for borrowers: the Supreme Court will rule on President Joe Biden’s loan forgiveness plan, federal payments will begin again after three years and new initiatives to expand repayment options are under development.
1. Know Your Loans
Student debt can be an immense source of anxiety. A little knowledge goes a long way when it comes to managing loans and creating a repayment strategy.
Start by familiarizing yourself with your student loan(s). Review its terms and conditions as well as any grace periods or repayment schedules, then reconnect with your loan servicer; consolidation might make managing them simpler!
If you have multiple loans with differing interest rates, refinancing may help lower monthly payments by refinancing student loans. To do this, compare rates from different lenders. However, be mindful that missing even one payment on student loans could put them into default and damage your credit – making it harder to take out new loans such as mortgage or car loans in future. If unsure about your ability to pay back these debts on time yourself, ask someone with better credit to cosign on them instead.
2. Develop a Repayment Plan
Student loan repayment can be daunting. A calculator or tool that helps you assess your options and make informed decisions may be just the ticket.
Standard repayment plans are the go-to solution for most borrowers, but there are other strategies you can employ to effectively manage your debt. Income-driven repayment plans may be ideal if payments under a standard plan become unmanageable; such plans limit monthly bills to a percentage of discretionary income and extend repayment terms up to 20 or 25 years.
An alternative option for repayment plans that is appropriate for those looking to avoid more interest over time is choosing a graduated repayment plan, which begins low and gradually increases every two years until your balance has been paid in full. This type of repayment schedule starts off small before increasing gradually until all outstanding debt has been covered in full. If you are unsure which plan is the right one for you, speak with your lender and reevaluate each year to see if there needs to be changes made to your plans. Recently, the Department of Education finalized an affordable repayment plan called SAVE: Saving on a Valuable Education This plan gives borrowers time to enroll before their payments restart next summer and safeguards financially vulnerable borrowers from being delinquent, reported to credit bureaus or sent to debt collection agencies if they miss the initial payments under this new plan.
3. Refinance Your Loans
Refinancing can save you thousands over the life of your loan, so it is wise to do it when appropriate.
Refinancing student debt to lower interest rates is often one of the primary motivations behind refinancing. If your financial circumstances have improved since taking out your original loan, refinancing could be an advantageous way of saving money and getting rid of student loan burden.
Refinancing may also give you the flexibility of selecting a new repayment term. This may help if you wish to accelerate debt repayment more rapidly over time or consolidate multiple loans into one monthly payment.
Be mindful that refinancing can have an adverse impact on your credit score, since paying off an old lender will ding it significantly. Therefore, ideally all outstanding balances have been cleared before considering refinancing; or shopping around for competitive rates is recommended if deciding to do so.
4. Explore Alternative Plans
Though Biden’s student loan forgiveness plan was denied by the Supreme Court, there are other initiatives available through the Education Department for borrowers to utilize. One such initiative, called SAVE or Saving on Valuable Education plan is “the most affordable repayment plan ever”, saving an average borrower an estimated $1,000 annually on repayment costs and interest accrual. SAVE allows borrowers to change their repayment terms to lower monthly payments while stopping accrual of further interest accrual.
This summer, under President Biden’s new rule, borrowers whose schools misled or closed unexpectedly can apply for relief through the borrower defense to repayment program more easily than under its predecessor, which required filing lawsuits against colleges followed by lengthy appeals processes.
Switching from a standard plan to an income-driven plan may also be an option, which would cap your monthly payment according to income and family size; this plan doesn’t forgive debt after 20-25 years of payments; for more information, visit the Education Department’s website; additionally, using an expense tracking or budgeting app can provide insight into what your cash flow looks like and how much can be afforded on student loans each month.
5. Apply for Debt Forgiveness
Though bankruptcy cannot erase student loan debts entirely, there may still be options to help reduce or cancel them out. A new website for those with federal loans now allows borrowers to apply for relief with just basic information required and it should take four to six weeks before any benefits show up in loan balances – though people interested should submit applications by November 15 in order to take advantage before federal student payments resume on January 1.
The Education Department made enrolling in income-driven repayment plans easier than ever, which cap monthly payments based on how much borrowers earn and forgive any remaining debt after 20 years of on-time payments. But NPR’s April 2022 investigation based on unreleased Education Department documents revealed that often mishandle these plans and that borrowers do not reap all the benefits intended by these plans.
If you work for either the government or non-profit and have made payments on federal loans for 10 years (even if not consecutively), PSLF may help erase the entirety of your outstanding debt. NPR reports that the Education Department is now offering this opportunity, and making applying more straightforward than ever to get credit toward forgiveness.
