What Can I Do to Prepare for Repayment of My Student Loans and Become Financially Independent?
(2 min 8 sec read) The NFCC often receives readers questions asking us how they should handle their student loans in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers.
Question: I have $80,000 in student loan debt under my dad’s name with a parent plus loan at 5% interest and $16,000 in my name with federal loans at 0% interest. I am extremely anxious about my ability to make monthly payments on my student loans while also gaining financial independence from my parents. My goal is to move out in three years once my career takes off. I just signed up for my masters program. I’ll hopefully get a hospital management position when I’m done. Is refinancing a good option or are there other options I should consider?
Outstanding debt, whichever the type, can be daunting. However, taking action and setting a plan in place not only can alleviate your anxiety but can effectively reduce your financial burden and help you become financially independent in the future. So, you have to start by evaluating your financial situation now and being flexible to accommodate your future financial goals.
Your ability to repay these loans quickly will depend on your current payment agreements and your financial solvency to make new payments. If your loans are under any COVID-19-related plan, your payments and interest are likely suspended in both loans. However, this relief will end in May 2022. So, it’s essential to be ready. One of the quickest ways to pay off your Parent PLUS loan is to refinance it with a private lender for a lower interest rate. The main downside of refinancing is that you’ll lose all the federal loan payment benefits, which include payment options if your income drastically changes. On the upside, you can pay your loan quicker and save money in the long run.
Refinancing with a private lender
Based on your comments it appears that your parents have taken a federal Parent Plus loan to help fund your college education. According to the U.S. Department of Education, the Parent Plus loan belongs to parents– no matter who is actually making the payments. However, considering how that loan will be repaid shows that you are a responsible person. However, because the Parent Plus Loan is not in your name, you can’t simply take it over or use a federal student loan consolidation.
You may be able to refinance your Parent PLUS loan with a private lender in two ways, under your dad’s name or yours, transferring the loan to you. The most important aspect of refinancing a loan is to qualify for a loan with a substantially lower interest rate. The terms and conditions of private student loans vary by lender so it’s always wise to compare loan offers from multiple lenders. If your dad’s or your credit is not ready, you may not get the interest you need to lower your payments and save money, so determine if you are both ready to take this step. If you are not, you can work to get your credit ready or consider other options.
Can you make extra payments?
Making extra payments is another way to pay off your loans quickly. Has your dad started making payments already? Even if the Parent PLUS loan was deferred before COVID, interest would continue to accrue, so early payments are always recommended. However, sending in extra payments is not always an option if you don’t have enough income. So, it’s important to review your budget and determine in which ways you can prioritize your student loan payments over other expenses. Some people opt for frugal living for a couple of years; others may get second-jobs or side hustles to earn the extra cash they need. In your situation, you may be able to get a job while you are in grad school and maximize your savings in your living expenses while you stay at home after graduating.
Other alternatives
When it comes down to paying debts, there is usually more than one way to do so. And the best strategy is unique to each person because it depends on how much you owe and how much income you have to make your payments. It helps to be prepared and put a plan in motion to take care of your debt early. You are on the right track, but if you want to get a personalized repayment plan, you can talk to an NFCC Certified Financial counselor by visiting NFCC.org or calling 800-388-2227. You and a certified financial counselor will review your overall financial situation and help you create a personalized plan to help pay your loans while you get ready to become financially independent.
