May 05, 2019

The Best (and Worst) Ways to Repay Your Student Loans

There are plenty of ways to repay your student loans – but not all of them are good options. To help you avoid mistakes that could cost you more money down the road, or even hurt your credit for the long term, our student loan experts have put together some of the best – and […]

There are plenty of ways to repay your student loans – but not all of them are good options. To help you avoid mistakes that could cost you more money down the road, or even hurt your credit for the long term, our student loan experts have put together some of the best – and worst – ways to repay student debt and keep your credit history in good shape.

The Best Ways to Repay Student Loans

Repaying your student loans doesn’t have to be complicated. Here are a few of the best ways to repay your loans without hurting your finances.

A new student loan repayment plan

While the 10-year standard repayment plan gets rid of debt more quickly than other repayment plans, it may not be the best option for everyone. For many borrowers, monthly payments under the 10-year plan are higher than they can afford, which makes other repayment options much more appealing.

If you find yourself in this situation, consider looking into income-driven repayment plans that offer lower monthly payments based on your discretionary income. These programs are especially helpful if you don’t have a high income, you are raising a family, and/or you have a lot of monthly expenses.

Income-driven repayment plans include:

Something to note: While these plans offer lower monthly payments, they do extend your repayment period. But on the plus side, they could also qualify you for one or more student loan forgiveness programs.


Student loan forgiveness programs

Some professions offer federal student loan forgiveness programs that eliminate your debt after completing certain requirements. These programs are especially helpful to those who work in public service, serve in the military, teach students or are employed in some healthcare professions.

Under unique circumstances, discharges of your loans are available if you’ve been permanently disabled or your college experience didn’t follow established DOE guidelines. These programs include:

Student loan forgiveness programs are great for getting rid of your debt. However, you’ll still need to repay your loans for a set amount of time before earning forgiveness in most of these programs.


Student loan consolidation

When you have more than one student loan, repaying these loans each month can be complicated. Instead of making multiple monthly payments to just as many servicers, you might consider rolling all your loans into a single consolidated loan that offers one monthly payment.

Whether you have private loans or federal loans, consolidation makes repaying your loans easier, and it often helps you get out of debt more quickly. After all, managing several loan payments, in addition to all of your other monthly bills, can get hectic. Once your loans are consolidated, you can set up automatic payments through your bank to make repaying your loans even easier.

More payments

Not everyone has the extra income to put more money towards their student loans. So even if you can’t make bigger payments each month, you might be able to make bi-weekly payments instead.

By paying your loans every two weeks, rather than once a month, you end up making an extra payment each year, which only helps reduce your balance. Most servicers (and loan types) will allow you to make payments ahead of schedule, and it could end up saving you hundreds in interest over the life of your loans.

The Worst Ways to Repay Student Loans

Now that you know the best ways to get out of student debt, here are a few things you should avoid while repaying your student loans.

Credit cards

Credit cards are great for emergency situations, but they can cause a lot of problems when they’re used to repay debt. Whether you’re thinking of transferring your student debt to a credit card, or getting a cash advance to pay off your loans, moving your debt from one place to another is never a good idea.

Even when credit card companies offer no- or low-interest introductory or transfer rates, these rates are only available for a limited time. This means if you can’t pay off your debt before the offer runs out, you’ll likely be faced with a much higher interest rate than you would have paid on your actual student loans.

Cash advances can be more problematic. While they give you access to cash almost instantly, they often come with high APRs and cash advance fees that result in higher monthly payments and lengthy repayment terms.

401k or other investment accounts

Getting a college education is a wise investment in your future. So is building your 401k and other retirement and investment accounts. One mistake a lot of borrowers make when repaying their loans is taking money from their 401k or other investments to pay off their loans for good. But it can lead to a lot of financial headaches.

Not only do these types of loans hurt your chances for an early or comfortable retirement, in some cases your employer may not allow you to contribute to your 401k until the loan has been repaid.

What’s more, these loans often require you to repay them through your paycheck, meaning you’ll get less money each payday. Even worse, if your job doesn’t work out for one reason or another, you’ll usually be required to pay back these loans immediately or face early withdrawal fees and income taxes from the IRS. No matter how you slice it, borrowing from your 401k – or any investment account for that matter – is a bad idea.

Debt settlement

If you’re concerned about the amount of debt you have on your credit history, you might think debt settlement is a great option for repaying your student loans and any other owed balances. The problem is, debt settlement companies often encourage you to stop making payments towards your debts, which can impact your credit enough to plummet your credit score and make you appear like a credit risk.

Another reason to avoid debt settlement is that you’ll be on the hook for any fees that come as a result of the settlement. This can add hundreds – or sometimes, even thousands – of dollars to your balance. Not to mention, not every one of your lenders will be willing to accept the repayment offers these companies bring to the table. If debt settlement can be avoided, it’s better to stay away.

Ready to repay your loans the right way? Explore your repayment and forgiveness options with our experts by filling out our online form or calling (800) 670-4196 to speak with a student loan specialist.