Student Loans Demystified Part 3: Student Loan Repayment Strategies

Repayment of your student loans can be a daunting task. However, repayment is achievable and many students successfully accomplish this task each year. The best-case scenario would mean that a student loan repayment strategy begins while a student is still in school. This blog post will provide 5 steps to establishing a repayment plan.

Step 1: Estimate the dollar amount of student loans you are on track to borrow while in school. To arrive at this estimate complete simple addition of how much you would have borrowed by the time you graduate if you were to continue to borrow at the same rate each semester.

With an estimate of how much you will borrow while in school you can utilize an online student loan calculator to get a rough estimated calculation on what your monthly repayment amount would be after graduation. To get a more accurate estimate we encourage students to meet with one of our financial coaches and build a projected repayment plan.

We encourage students to weigh this monthly payment amount against what there expected salary (in the career field they have chosen) and cost of living (in the city they would like to live in after school) will be upon graduation to determine whether the amount they are borrowing is an affordable amount.

Step 2: Start repayment of your student loans early. Students are able to begin making payments on their student loans prior to graduating to reduce the balance and get ahead. The steps for a student to make an online account with their loan servicer to make payments are outlined in part 1 of this blog series.

When you graduate or go below half-time as a student you are given a sixth month grace period before you are required to make your first payment. If a student has not already started making repayments we advise that students make payments during the grace period. It will allow the student to get ahead and reduce the monthly payment amount during the repayment period.

Step 3: If I am able to begin making payments early or I am to allocate additional dollars above my required monthly payment amount which of my student loans should I put the money towards? We suggest picking your student loan with the highest interest rate to allocate early or extra payments towards as this reduces the amount of interest that you will pay back over the duration of the loan and save you money

Step 4: Entering Repayment Phase. As mentioned previously six months after graduation or dropping below half-time payments will come due. It is most essential that you prepare ahead of time to make sure that your budget is prepared for the new monthly payment required. A common mistake the graduates make is adding too many fixed expenses to their budget in the six month grace period prior to their loans coming due. This then makes repayment difficult even when a graduate has begun a decent paying job. We strongly encourage students as soon as they land a job to create a space in their budget for their student loan payment.

Secondly, you must decide which repayment plan to choose. Access to the different repayment plan options that you have will be found either by logging into your student loan service account or speaking with a student loan servicer representative.

There a four repayment options that are most common. The standard repayment plans, graduated repayment plans, extended repayment plans and income-based repayment plans.

Standard Repayment Plan: Unless you request an alternative payment plan you usually will be enrolled in the standard repayment plan. This plan means that you will be expected to make a monthly payment for ten years. This means 120 equal payments to pay off your students loans. As with all of the payment plans you are able to make additional payments to reduce your loan balances and pay them off early. We advise students to utilize this payment plan if at all possible. This is because this particular plan will cost a student the least amount of compounded interest charges.

Extended Repayment Plans: These particular plans allow you to extend your payments out over 20 to 25 years. This plan means that your monthly payment will be a reduced payment. It will be either 240 or 300 monthly payments. This repayment plan is kinder on the monthly budget but will cost much more money through more interest compounding over the duration of the loan

Graduated Repayment Plans: These particular plans start with monthly payments that are lower at first and then increase over a ten year period. The payments towards the end of the ten years will a much larger sum. In some instances this plan can expand beyond ten years. Once again this plan is friendlier to a monthly budget at the beginning. If you opt to use this plan it will cost more money over time than the standard repayment plan due to more interest accruing at the beginning portion of the repayment plan.

Income-Based Repayment Plan: There are a number of different forms of this plan. All of the plans of this nature determine your monthly payment amount based off a percentage of your income to ensure to that the payment is affordable. This payment plan takes anywhere from 15 to 25 years of monthly payments to complete. As with all of the plans mentioned except the standard repayment plan choosing this plan will mean additional money will be paid in interest. If you are eligible for the public service loan forgiveness program one of these payment plans may be good for you.

Step 5: Begin making payments! You can do it. Don’t lose hope. Remember, the more proactive you are on the front end with planning and attempting to minimize borrowing while in school the more money you will save! Here is one final tip to save you money. If you schedule an automatic electric monthly payment from your checking or savings account, you receive a 0.25% interest rate deduction on Federal Direct Loans.

We are here to help. If you would like assistance building a plan to minimize student loan debt and repay your student loans the WKU Center for Financial Success is ready to help. Click here to schedule a free financial coaching session today!

If you haven’t had a chance to read the previous posts in the Student Loans Demystified series catch up here:

Student Loans Demystified Part 1: Where do I start?

Student Loans Demystified Part 2: Terminology Simplified

Student Loans Demystified Part 1: Where do I start?

Student loans are no joke. They can be confusing and stressful. On top of the stress in the age of information, there is so much misinformation it is hard to know what to believe or where to start? Here is where we suggest starting.

Where to start:

Determine how much you have borrowed in student loans. The National Student Loan Data System (NSLDS) is one stop location to determine the balances of any student loans that you have borrowed from the Federal Government. To access the information found on NSLDS you will need the user id and the password that you would use for your FAFSA application.

Know the name of your loan servicer. A “loan servicer” is the organization that manages your loans for the federal government. This is the organization where you can make payments towards your student loans. You can learn the name of your loan servicer on the national student loan data system website.

Establish an online account with your student loan servicer’s website. As mentioned above you will be able to make payments as often as you would like. You do not have to wait until you graduate to start making payments. We will provide strategies for repayment plans including early repayment of loans in part three of this blog series.

For undergraduate students, the utilization of parent plus loans is not common for all students and private loans are even less common. However, they are utilized by a number of students. Private student loans and parent plus loans will not be found on NSLDS or your Student Loan Servicer account. Private loan amounts will be found by inquiring directly with the lender. Parent Plus loan information can be found by the individual (most likely a parent or guardian) who borrowed the loans for your education.

If you are unsure if you have utilized these loans to fund your education visit the financial aid tab on Topnet and review your “account summary by term” to see if these loans were used to fund your education.

If you have questions and would like to speak to a trained financial coach about your student loans please visit the WKU Center for Financial Success website and request an appointment at this link https://www.wku.edu/cfs/become-a-client.php.

The next segment will focus on simplifying the all too confusing terminology for student loans into easy to understand language. Click here to read it.

Financial Wellness Checklist for Graduating Seniors

It is almost graduation! While graduation is an exciting time, it can also be overwhelming to be thrown out into the “real world”. Getting your financial life in order can help you to feel more prepared for the next chapter in your life. Although this post is geared toward graduating seniors, it is helpful for anyone.

I also want to add that our counselors are here for you. Visit us before graduation and let us help you start post-grad life off on the right foot!

I have compiled a neat checklist for you to follow along with. This list is not exhaustive, but is a great start!

Graduating Senior Financial Checklist:

  • Create an online log-in with your student loan servicer
  • Set-up an appropriate repayment plan for your student loans
  • Open a checking account with no minimum balance and no monthly fees
  • Open a high-yield savings account to store emergency fund and other intermediate-term savings
  • Perform a credit well check- consider opening a credit card if you do not already have one
  • Read your employee benefits- if you are starting your career, spend some time studying your new benefits
  • Create a written budget
  • Start saving for retirement- utilize your employer match if you are starting your career, or consider opening a Roth IRA
  • Write out your short-term, intermediate-term, and long-term financial goals

The WKU Center for Financial Success has resources explaining how to accomplish these items here:

https://www.wku.edu/cfs/resourceshome.php

Our counselors can also walk you through this checklist and have you leaving WKU empowered and excited for the road ahead!

Visit our website to set up an appointment:

https://www.wku.edu/cfs/become-a-client.php

How to Quit Stressing About Student Loans

If you’re reading this, you probably have student loan debt. It’s just a fact of life. The average student loan debt at graduation for WKU students is $28,000.

While the debt is a fact, the stress that ensues from it can be overwhelming and debilitating.

And everybody knows, the best thing to do when something is overwhelming is to suppress, suppress, suppress. When someone mentions student loans you just make like Andy Grammer and say, “Nah, nah, honey I’m good” and go about your day.

The great Michael Scott, long-time Regional Manager of Dunder Mifflin Scranton once said, “And I knew exactly what to do. But in a much more real sense, I had no idea what to do.”

You probably know exactly what you must do: pay back student loans after graduation. But how can you do that when you aren’t sure of your balance, the types of loans you have, who your loan servicer is, and repayment strategies? Answer: you can’t.

These amounts aren’t arbitrary. They are important and relevant to your life at this very moment. There are things you can and should be doing this month and this semester and this year to poise yourself for financial success now and into the future!

You have a couple things you can do. One is to whine! This is terrible, they don’t teach you this in school, school should be free, etc., etc., blah, blah, blah. Okay, now that were done whining, we will move on.

Next is to accept the reality. You are making an investment in yourself by attending WKU. You clearly value knowledge and are poising yourself for a successful career in an area you care about. And there are costs. Let’s not ignore these costs, but instead weigh them with the benefits!

We as humans tend to ignore what overwhelms us, especially finances because we lack the prowess to effectively manage them.

You, however, made a very intelligent decision to attend WKU. As a student you have full access to the counselors at the WKU Center for Financial Success, who will sit down with you one-on-one and go over each student loan, your WKU costs, as well as the other aspects of your financial life and create a financial strategy with you.

The problem with student loans is the uncertainty of it all. You’ll come into a one-on-one meeting feeling nervous and stressed, but you’ll leave with an attack strategy. We cannot erase your student debt, but we can help you handle it.