How to negotiate and pay off student loans fast – Smart options
If the burden of your huge student loan debt is increasing your financial fear, then you should find a solid debt repayment option to become debt-free
Well, there are many student loan repayment options available. You need to choose the right option based on your income and the type of student loan you have taken out.
If you have private student loans, then there are certain options you have to repay them. Also, if you have federal student loan debt, then there are some federal student loan repayment options for you.
Let us discuss every option available out there so that you can have a detailed idea about paying student loan debt.
How to pay off student loans fast
Usually, students take out federal student loans to fund their education costs. On the other hand, some students take out both private and federal student loans to manage their studies.
Options for paying off federal student loan debt
The federal government has planned out various repayment options for borrowers.
There are many repayment plans that can help students to repay their Federal student loan.
Check out some of the repayment plans below:
Standard loan repayment plan
In Standard repayment, you can repay your debts during a debt payoff term of 10 years. You’ll need to repay the debt with up to 120 monthly fixed payments. If you have Direct Subsidized and Unsubsidized Loans, PLUS Loans, and Direct Consolidation Loans, you can repay them by making $50 every month.
Extended repayment option
As the name suggests, you can repay your debts over an extended period of time. With an extended repayment option, you can repay your debts within 25 years.
Graduated repayment option
In the graduated repayment option, you can make payments for 12 to 30 years. This plan lowers the monthly loan payments. This option is ideal for people who have less income.
Income-driven repayment options
The repayment option has been designed to keep low-income borrowers in mind. This repayment option is based on the borrower’s income. It provides 4 types of repayment options:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income Contingent Repayment Plan (ICR Plan)
A federal direct consolidation loan
You can consolidate your federal student loan with a student loan debt consolidation loan. By doing so, you can combine your numerous existing student loans into one loan that has a fixed interest rate. However, you can consolidate your federal student loan by taking out federally sponsored loans, which have their own terms and repayment options.
Options for paying off private student loan debt
If you have multiple private student loan debts, then you can repay them in many ways. You can consolidate your student loan debts to repay them. With consolidation, you can merge other debts as well. Apart from consolidation, you can settle your debts as well.
Here are some important things to understand when paying off your private student loan debts.
Determine your total debt
First, you should determine how much debt you owe. Determining the total debt you owe is important to understand where you stand, what will be the repayment strategy. Also, it helps to calculate the interest rate that you’re supposed to pay.
Take out a consolidation loan
If you’re looking forward to paying off your student loans in easy and affordable monthly payments, you can use a private consolidation loan to consolidate all your private student loans. Make sure the interest rate of the consolidation loan is low and affordable.
Make payments on time
While you’re taking a debt consolidation loan to consolidate all your educational loans, make sure you do not default on your loans or become delinquent. If you do not make the payments on your consolidation loan, you may hurt your credit score terribly.
Settle your private student loan debts
You can also avail the option of settling your debts. You can negotiate with your lender to lower the total amount of debt. Also, you can enroll in a debt settlement program for settling your debts.
Is it smart to consolidate your student loan debts?
You can think about why you should consolidate your student loan debts. Is it a smart decision? Well, consolidating student loan debt depends on the debt situation you are in and your income. If you think that your financial situation is going to improve in a few months, then debt consolidation might be one of your best debt solutions.
Here’s how can debt consolidation can help you repay your student loans:
Lower interest rates
The interest rates on the debt consolidation loan will be much lower than what you were paying on the student loans. As interest rates will be lower, you can easily repay your student loans in small and affordable monthly payments without having to fall back on all the other debt obligations that you have in a month.
Longer repayment terms
As the students usually live on a fixed income, they usually look for ways to repay the debt in small monthly payments. Through a debt consolidation loan, they will get the chance of repaying the debt throughout an extended period of time, thereby saving money every month.
Single monthly installment
If you are unable to remember multiple due dates, you can replace them with a single monthly payment through a student debt consolidation loan. You just have to make a single payment to the loan and forget the hassle of remembering multiple due dates.
Boost your credit score
If you can make timely payments on your debt consolidation loan, you can easily boost your credit score. Initially, when you make the decision of consolidating your debts through a loan, you might hurt your score but as soon as you start making the monthly payments on time, your score improves.
How can you negotiate a payoff plan for student loans?
Yes, you can negotiate with your lenders for an easy payoff plan on your student loans. However, to do so, you need to talk to your lenders.
Ask for an extended payment plan
If you are facing financial hardship for a time being, you can request your lenders to extend the payment time so that you can avoid the missed payment charge. Talk to your lenders and request them for approving the extended payment plan.
Settle your student loans
If you can’t afford to repay the total student loan debt that you owe, then you can consider a settlement option. In debt settlement, you need to pay a reduced amount of debt. However, to do so, you have to convince your lenders for the settlement. You need to contact your lenders to negotiate a lower amount of debt that you can repay. If the lenders don’t agree to your proposal, then you have to repay the full amount of debt that you owe.
Enroll with a debt settlement company
Since the negotiation part of a settlement process is quite tricky, many borrowers enroll with a debt settlement company to get it done. Once you enroll in a debt settlement program, the negotiator will start negotiating with your lender for a low amount of debt.
In a debt settlement program, all your extra charges and late fees can also be waived off. A repayment plan is decided on and your creditors are made aware of that.
Though all the student loans can’t be discharged through bankruptcy, there are some people who still make this drastic decision. Avoid making such decisions as this will trash your credit score and jeopardize your chances of grabbing a new job.
What happens if you never pay off your student loans?
Not paying student loans is the worst financial move you could ever make.
Here’s what happens when you don’t pay off your student loans.
The loan goes into delinquent
If you stop making payments, then after 90 days, the lender will report the delinquency to the credit bureaus. This will affect your credit rating. Your new loan application may be denied or will be approved with the highest interest rate because you will be considered a risky borrower.
The Account is ‘In Default’
If you don’t make payment for 270 days, then officially your loan will go into default. Your loans can be transferred to student loan collection agencies.
What happens if you default on your student loan?
The consequences of defaulting on your student loan can be bad for your financial health.
Here’s what happens when you default on your student loan.
- Your loan and its interest becomes due and payable
- You will not be able to become eligible for programs like student loan forgiveness, forbearance, deferment, and changing repayment plans
- You will not be eligible for additional financial aid
- Your loan will be reported to the 3 credit bureaus as a delinquent
- Defaulting on loans can hurt your credit score
- Your wages can be garnished to repay the debt
- Your lender can send the loans to the collection agencies for collection.
- You could have your tax return, social security and federal payments garnished.
Will student loans go away after 7 years?
If you default on your student loans and they are reported to the credit bureaus, the listing will not disappear after 7 years. However, it depends on the type of loan.
The statute of limitations applies if the loan you have taken is a private student loan. SOL is usually 3 to10 years. Once the SOL period has passed, legally, you are not liable to repay the debts.
Once you default on your student loans, it is recorded in your credit report. After 7 years passed, the negative listing will be removed.
Do student loans affect the stimulus check?
The Federal Reserve has decided to keep short-term interest rates (nearly zero) and keep the bad economy amidst the coronavirus pandemic in mind. So people who are taking out federal student loans can expect low, fixed interest rates. And people who have already borrowed federal student loans don’t need to make payments because Congress has suspended payments from April 2020 and interest through the Federal Student Economic Security Act (CARES) Act.
Borrowers who have already taken out federal student loans can avoid making payments. However, the Cares Act is going to end on September 30. And again the borrowers are entitled to make their payments.
But in keeping with the pandemic and economic conditions to account, a number of Acts have been passed by Congress.
Here you go:
U.S. Govt. approved the HEROES Act coronavirus relief package in May 2020. It extends the CARES Acts for an additional 12 months.
It also extends FFEL-program federal student loans and federal Perkins loans. This ACT provides $10,000 in federal and private student loan forgiveness to borrowers who are facing financial hardship.
It has its own stimulus proposal. It simplifies the HEROES Act. The plan is similar to an income-driven repayment option.
On the other hand, people are also worried about their stimulus check. According to the CARES Act, people of America are entitled to receive stimulus payments of up to $1,200. Since they have student loan debt, they are worried about how their stimulus checks can impact their student loans. Some people fear that lenders could seize their stimulus payments to repay their student loans.
Will your wages or stimulus check be garnished with a student loan?
The government will not garnish your stimulus checks for your delinquent federal student loans. If you are facing financial hardship due to this pandemic, you can contact lenders for forbearance or deferment options.
But, in the case of private student loans, they will not be discharged after the death of the borrowers. Private loan debts will be paid off in the same way as other unsecured debts. The debt falls under the estate settlement process (also called probate). However, estate settlement rules vary by state.
Is it better to settle student loans or pay in full?
It is always better to repay your student loan debts in full. If you settle your debts, your account will be reported to the credit bureaus as “settled”. This can have a negative effect on your credit score.
Does consolidating student loans affect your credit?
Student loan debt consolidation can affect your credit both positively and negatively depending on how you manage the loan.
With federal student loan consolidation, credit scores don’t get hurt since you are repaying the debt in full.
If you take out a consolidation loan to repay your private student loan and again default on the new loan, then it can affect your credit health severely.
But paying off student loans by enrolling in a debt consolidation loan is always better. Because
- Once you enroll in a debt consolidation loan, it makes your payment more affordable.
- Your debts are eliminated after completing the consolidation program successfully.
- The account status will show as “paid in full” after you have cleared all your dues.
- You can add positive information to your credit report at various times.
- Gradually, your credit ratings will improve.
Overall, if you consolidate your student loan debts, your credit score will not suffer.
Lastly, debt consolidation can be a good option to repay your federal and private student loan debts. If you are still not sure where to start to repay your student loans, you can consult with a CFA for help. It is always recommended to consider a student loan planner to help you put together a solid payoff plan for your student loan deb