Americans owe billions of dollars’ worth of private student loans, and that sum is on the rise. Unfortunately, knowing how to pay off private student loans isn’t always easy, especially since private loans don’t come with the same flexible repayment options as federal ones.
But whether you’re looking to lower payments or just retire your debt faster, there are useful strategies for repaying private student loans. Let’s explore some of your private student loan repayment options, starting with a look at the difference between private and federal education debt.
How to pay off private student loans vs. federal ones
If you’ve got federal student loans, it’s fairly easy to adjust your monthly payments via an income-driven repayment plan, graduated repayment, or a number of other options.
Private student loans are a different story. Generally, private lenders expect you to follow through on the contract you signed when you first borrowed. If you agreed to pay a certain amount each month for 10 years, that’s what the lender expects you to do.
But as you know, circumstances can change, and sometimes you lose your job, go back to school or encounter an emergency. In this case, your lender might be willing to work with you to adjust your payments — but unfortunately there’s no guarantee.
This lack of flexibility is one of the biggest problems with private student loans. Another is the lack of consistency among lenders — your situation could vary wildly depending on what lender you’re working with.
But don’t worry. Even if you won’t have all the choices that you would with federal loans, you do still have some solid private student loan repayment options. Here are six moves to consider:
1. Adjust your payments through refinancing
If you meet underwriting requirements for credit and income — or apply with a cosigner who can — you could restructure your private student loans through refinancing.
When you refinance, you swap one or more of your old loans for a new one. This new loan could have a better interest rate, thereby saving you a nice chunk of money over the life of your loan. Plus, you get to choose new repayment terms with adjusted monthly payments.
If you want to pay off your loans fast, you could choose a shorter term with higher monthly bills. On the other hand, if you’re struggling to keep up with payments, you might select a longer term of 10, 15, or 20 years to lower your bills.
Although a longer term will cost you more in interest overall, you’ll feel like you’re saving money from month to month; this approach could be a huge help if you’re working with a limited budget. And if you start making more in the future, you could always throw extra payments at your student loans without penalty.
Note that if you were refinancing federal loans, it would turn them private and you would lose the flexible options that come with federal debt. But since you’re refinancing loans that are already private, you don’t have to worry about this sacrifice.
Make sure to research various lenders before choosing an offer so you can find one with a competitive interest rate — and sometimes, with useful perks as well. Earnest, for instance, has deferment options, and SoFi even offers career coaching. By choosing a lender with a good reputation, you might find your private loan repayment options are more flexible going forward.
2. Ask your lender about forbearance and deferment options
Refinancing can be a useful option for borrowers who have a cosigner or whose finances are in good shape, but maybe you need student loan relief now. If you’re struggling to pay back your bills, ask your lender about forbearance or deferment options.
Lenders such as Sallie Mae and CommonBond will temporarily pause payments on your loans in the event you lose your job or go back to school. This postponement of payments could be a huge help until you get back on your feet or graduate.
That said, not all lenders offer this option — check your student loan repayment contract to see if deferment or forbearance options are mentioned. Either way, it’s still a good idea to call your lender to see if they can help — after all, it doesn’t want you to stop paying your loan completely.
Sallie Mae, for instance, says: “We’ve helped customers through financial troubles and we’re committed to working with you to help you with your student loans during this period. … We can work together for a solution.”
Even if lenders don’t advertise flexible private student loan repayment options, yours might be willing to consider a new repayment plan that matches your budget.
3. Come up with a plan for targeting your private student loans
As of September 2018, the average student loan borrower had 3.3 student loans — and if you’re juggling multiple student loans, you might not be sure which ones to deal with first.
Of course, you’ll want to start by paying the minimum on all your loans to avoid default. But if you can pay a little extra each month, it could be a good idea to prioritize your private student loans over federal loans.
That’s because private debt doesn’t have the same flexible options as federal debt, and it usually has higher interest rates as well. What’s more, some private loans have variable interest rates, which could rise over time.
So if you can throw extra payments somewhere, it’s probably smart to put them toward your private loans. You might also explore the debt avalanche and debt snowball methods of debt repayment.
The debt avalanche method has you target the highest-interest debt first. This approach makes the most mathematical sense, since it will save you the most money on interest.
Note, however, that if your high-interest loan also has the highest balance, it might be years before you’re able to pay it off. If you’d rather close an account fast, consider the debt snowball approach instead. With this method, you pay off the lowest balances first, knocking them out quickly to motivate you and keep you moving forward.
Whatever you choose, devising a strategy to manage your debt will help you feel in control of your financial situation as you work toward a debt-free life.
4. Get proactive about your financial situation
Even though your student loans might feel burdensome, it’s up to you to figure out how they fit into the puzzle of your bigger financial picture. You probably have lots of financial obligations — rent, food, Netflix, etc. — and your student loan payments are just one of them.
But if you’re eager to pay off your loans ahead of schedule, you might search for ways to accomplish this goal speedily. Start by crafting a budget so you can get a bird’s-eye view of your income and expenses.
Look for areas where you can save money, whether that means moving in with roommates, spending more time meal-prepping instead of eating out, or forgoing a pricey gym membership in favor of a cheaper gym across town. Although it might involve some unpleasant sacrifices, adopting a bare-bones budget could help you pay off debt faster.
At the same time, cutting and scrimping will only take you so far, so look for ways to increase your income too. Maybe you can get a raise at work or search for a completely new job.
Or perhaps you can take on a side hustle, such as driving for Lyft or freelancing online. While you don’t want to spread yourself too thin, making efforts to pull in some extra cash could give you the means to get out of debt years ahead of schedule.
Still, you don’t want to sacrifice your other savings goals or lose out on valuable investment opportunities. Consider all your financial priorities carefully so you can find the right balance.
5. Seek out private student loan repayment assistance
Although private student loans won’t qualify for federal forgiveness programs, such as Public Service Loan Forgiveness, you might get some of your balance wiped away through a loan repayment assistance program (LRAP). Many states offer LRAPs for qualifying professionals, such as lawyers, doctors and teachers, particularly if they work in shortage areas for two to three years.
Plus, some employers offer a student loan matching benefit to employees. Depending on where you work and what your field is, you could qualify for significant assistance toward your student debt.
6. If nothing else works, try to discharge private student loans
Getting rid of student loans through bankruptcy is rare, but not impossible. If you qualify for Chapter 7 or Chapter 13 bankruptcy, you might be able to get your student debt balance wiped away. You’ll likely need to prove you have undue financial hardship.
Other scenarios where you could get private student loan discharge include if you attended an ineligible school, borrowed more than your cost of attendance, or weren’t an eligible student. Whatever the case, you might need to pay for a lawyer, as well as for any other fees associated with declaring bankruptcy.
This process could be long and expensive, and should probably only be used as a last resort. But if you’re in dire financial straits, you could investigate getting rid of your private student loans this way.
Learn how to pay off private student loans with a strategy that works for you
Private student loan borrowers share the same goal — to pay off their loans. But the strategies they use to get there might look different.
Some borrowers might slash their expenses and pick up side hustles to pay off debt fast. Others might take advantage of forbearance options to postpone payments temporarily.
Although private student loans aren’t as flexible as federal ones, you do still have options and rights as a borrower. Take time to speak with your lender about your private student loan repayment options.
By taking a proactive approach to repaying private student loans — while avoiding the pitfalls of private debt — you can find the right strategy for you as you work to conquer your debt once and for all.
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