Student loans are our generations biggest financial danger. On average student loans put us in a $35,000 financial hole on the day we graduate. Worst than that, most of us do not know what to do about them.
There are four options you have. They range from paying off your loan immediately, to having your loan forgiven.
Forgiveness should always be your first consideration. With other strategies, you are trying to minimize the interest you spend, but with forgiveness, you reduce not only the interest but also the principle your repay.
There are multiple forgiveness paths you can take. If you are a teacher, you have a program designed specifically for you, Teacher Loan Forgivenss. If you do not qualify for that, there are more options. If you work for a non-profit or have a government job, including teacher, you have access to Public Service Loan Forgiveness. Don’t let your income lead you to believe you do not qualify. There are some moves you can make to increase your forgiveness.
Lastly, for the rest of us, there are still forgiveness options. They are not ideal, and often mean you are making less money than is desirable, but they are there.
Remember, you do not need your entire loan to be forgiven for this to be your best option.
Pay off quickly
Paying your loans off as quick as possible is the default advice of most financial experts. The argument usually goes like this: “The quicker you pay off your loans, the less interest will cost you.”
It’s power come from getting out of debt quickly. While I am not against this plan, it is essential to prioritize your student loans accurately. Often, these loans cause the most pain. Large payments. Giant balances. They just feel like a brick tied around your neck. Getting them paid off quickly feels like a great option.
That being said, student loans have some features that can help you in a time of need. It may be better to focus on paying down that high-interest credit card or large car payment first. It may also be better to make sure your retirement is adequately funded.
I do not recomened ignoring your student loans, but treating them more like your mortgage.
Pay off on time
Paying off your student loans on time is the middle child of student loan strategies; often forgotten just like all us middle children. When I say “on time,” I just mean inside the scheduled payoff plan you selected. The program could be ten years, but may also be 20 years.
Much like paying off your loans quickly, there is nothing inherently wrong with this plan. It just requires you properly prioritize your student loans.
If you make too much to qualify for Income Driven Repayments but are still financially strapped, this is the best option for you. It will allow you to handle your more pressing and economically dangerous issues. Things like delaying retirement savings, bad debt and being adequately insured.
Delay then Pay
The Delay then Pay plan is for those that have a low enough income to receive income driven repayments but expect their income to increase over time. In the Delay and Pay plan, your goal is to pay off your loans, just not in 10 years.
Delay and Pay can be helpful or dangerous. When used correctly, you can delay paying down your student loans until you either have a higher income or have paid down other bad debts. What you want to avoid are prolonged periods of Income-Driven Repayment without qualifying for forgiveness.
There goal her isn’t to get forgiveness, because you do not expect to recieved forgiveness. The goal her is to help you get your finances pointed in the right direction while your income grows to the point where you expect it to be.
This is a great plan for lawyers or doctors.
Knowing these four methods for handling your student loans will help you make the best decisions. Each has their nuances, but one is correct for you. If you need help choosing the proper, I am here to help. Here is a link to my student loan services.