Many of the different types of repayment plans for federal student loans might not be best suited for your financial situation. Fortunately, DIY financial strategies are both available and advisable to consider. Some of these are simple to perform but still highly useful. For example, setting up autopay on your student loan account usually only requires the click of an online button. Autopay enrollees are often privy to discounted APRs once enrolled, however.
Many student loan programs are willing to lower your APR by approximately 0.25% just because you enrolled in their autopay plan using a verified payment method. Autopay enrollment benefits both you and your lender. Your lender benefits by having automated debits deducted from your bank account or other valid payment method each month. You benefit by never having to worry about forgetting to make your student loan payment on time.
Finance Methodology 101
Your student loan debt is paid down faster when you make bi-monthly payments instead of monthly payments on your loan balance. Almost every type of loan program front-loads your monthly payments to pay off your accrued interest first. This is also true for credit card debt, which is why credit card debt is so hard to pay off for many consumers.
A minimum payment of $50 per month might apply $45 toward accrued interest but only $5 toward your actual purchase balances. The same method is applicable to installment debts as well, however. How does making bi-monthly payments allay this situation?
Interest is accrued on the total balance owed. If you make one monthly payment, the interest on your loan is charged on the same balance for the entire month. If you make two monthly payments, however, the interest is calculated on a lower balance for half of each month.
This has a cumulative effect over the life of your loan, which in turn shortens the life of your loan. Essentially, making bi-monthly payments allows you to pay down your principal faster, which results in the accrual of less interest overall. Please note: Most lenders have payment calculators on their respective websites to help you calculate the difference between making monthly and bi-monthly payments on your student loan.
An income-based repayment (IBR) plan is one of four types of income-driven repayment (IDR) plans offered on federal student loans. The other three types include Revised Pay as You Earn (REPAYE) Repayment, Pay as You Earn (PAYE) Repayment and Income-Contingent Repayment (ICR) plans.
Each of these plans has its own qualification requirements, although your income level is the most significant determining factor for all four. IDRs reduce your monthly installment payment requirements to help you obtain financial relief and more fortuitous money management opportunities.
In addition, utilize any of the following programs and plans as applicable to you:
- Public Service Loan Forgiveness (PSLF) program.
- Total and Permanent Disability Discharge program.
- Teacher Loan Forgiveness (TEACH) program.
- Standard Repayment.
- Extended Repayment.
- Graduated Repayment.
- Comparison-shop private lenders for lower finance loan APRs.
Some aspects of paying down student loan debt faster are in your hands. Some of it might not be, however. Utilizing multiple strategies simultaneously to reduce the APR and payment term on your student loan(s) is advisable. Take advantage of tips listed above.
