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7 Strategies for Repaying Your College Loans

Creating a plan to repay your student loans can help you get out of debt faster and borrow less in the long run.

1. Understand how your student loan debt will affect your future.

It can be hard to imagine how your student loans will impact your income and lifestyle. Will you make enough money to cover your loan payments and still maintain a balanced quality of life?

You can get some idea by looking at a student loan repayment calculator. (Try 1st Financial Bank USA's Student Loan Repayment and Affordability Calculator or the U.S Department of Education's Repayment Estimator.) These types of calculators will show your estimated loan payments, based on your interest rate and term length of the loan, and how much of your future salary will go toward those payments. It's a reality check that can prevent you from over-borrowing in college.

2. Make student loan payments while you're still in school.

It might sound impossible to make loan payments while you’re still a college student and not earning a significant income. But any amount you can put toward your student loans, for example from the money you earn from part-time or odd jobs, will reduce your debt—and help you form responsible saving habits in the long run.

Federal unsubsidized loans and private loans accrue interest during college that will be added to your total loan balance, so paying down this interest as soon as possible will result in lower debt at graduation.

3. Return your financial aid refunds.

After your school receives your college loan disbursement from your lender, it will deduct tuition, fees, and other costs and refund the remainder to you to use for expenses not billed by the university (things like off-campus rent, books, and supplies). If you have money left over after covering these expenses, it will be tempting to spend it. Instead, consider saving it. Once you spend that money, you'll have to pay it back with interest. Instead, return the refund to the lender within their specified time period (usually from 30-120 days) so you stay on track.

4. Pay down high and variable interest loans first.

You will pay off your student loans faster if you make more than the minimum payment each month. If you have multiple college loans with different interest rates, some financial experts suggest paying more than the minimum payment on your highest and variable interest rate loans and making the minimum payment on loans with lower, fixed interest. You'll help eliminate or reduce your most expensive college loans faster and protect yourself from variable interest rate hikes that can suddenly raise your monthly payments.

5. Work and save during the "grace period."

With federal college loans, you are not required to make payments until six months after you graduate. This is known as a "grace period." Save as much money as you can during this time to put toward your loans, especially if you land a job right out of college.

6. Set up auto-pay.

Having your student loan payments automatically deducted from your bank account will prevent you from missing payments and incurring late fees. Even better, some loan servicers offer an interest rate deduction if you sign up for auto-pay. Federal student loans, for example, offer a 0.25% interest rate deduction.

7. Choose the right student loan repayment plan.

Look at all the repayment plans available and choose one that works best for your financial goals. Federal college loans, for example, offer several repayment options:

  • The standard plan sets up the same payment amount every month (with a minimum payment of $50). If you don't choose a different plan, this is the one you'll get. Students on this plan must pay off their loan in 10 years.
  • The graduated plan increases your payments every two years. Students must repay this loan within 10 years.
  • The extended plan sets up either a fixed or graduated payment over a period of 25 years.
  • The four income-driven plans allow payments to fluctuate according to your annual income, family size, and other factors. For example, the Revised Pay-as-You-Earn plan reduces monthly loan payments to 10 percent of discretionary income and forgives the remaining loan balance after 20-25 years of consistent payments.

You can switch to a different repayment plan anytime with no penalty. Just keep in mind that a plan with a lower monthly payment will take longer to pay off, and you'll pay more in interest.

Financial information contained on the CollegeData website is for general informational purposes only and may not apply to you or your situation. You should not act or refrain from acting on the basis of any financial content contained on the CollegeData website without consulting with a financial or tax advisor, or your parents, high school counselors, admissions representatives or other college counseling professionals. We disclaim all liability for actions you take or fail to take based on any content on the CollegeData website. 

What's Next?

Start thinking about your college budget with 6 Tips for Managing Your Money in College

For more information about federal loan repayment and federal aid for college, visit the Federal Student Aid website.