Funding Your Future: Cutting down student debt

Repayment of Student Loans

  • If you are applying for student loans it’s not too late. Deadline is Oct. 1.
  • If you graduated this spring, you are approaching the end of the 6 month grace period.

Things to Remember:

  • Grace Periods
    1. Typically, this timeframe is 6 months from the time you graduate or drop below half-time enrollment.
    2. During this time you need to select your repayment method.
  • Repayment Methods: You have the power to choose. Compare at studentloans.gov.
    1. Standard: Under this plan, your monthly payments are a fixed amount of at least $50 each month made for up to 10 years. This repayment plan saves you money over time because your monthly payments may be slightly so you'll be able to pay off your federal student loan in the shortest time. For this reason, you'll pay the least amount of interest over the life of your federal student loan.
    2. Pay As You Earn (PAYE): A repayment plan with monthly payments that are generally equal to 10% of your discretionary income, divided by 12.
    3. Income Based Repayment: A repayment plan with monthly payments that are limited to 15% (10% if you are a new borrower) of your discretionary income. Discretionary income for this plan is the difference between your adjusted gross income and 150% of the poverty guideline amount for your state of residence and family size, divided by 12.
  • Tips for Repayment:
    1. Don’t use the grace period if you don’t need to—you’re accruing interest. For example, if you have a loan of $35,000 at 6% interest, those 6 months could accrue you more than $1k in interest.
    2. Recognize the power of small extra payments. One tip is to pay every two weeks with your paychecks versus just once a month. Example: A loan of $35,000 at 6% interest for 20 years = $250/mo. By increasing it by just $45/mo you would cut 5 years off repayment and save more than $6800 in interest.
      1. Set up auto-deductions: many lenders will lower your interest percentage. And it will keep you from accidentally defaulting
      2. Consider Consolidation or Refinancing: Be sure to research and use comparison calculators to make sure it’s the best option. One benefit is it can simplify payment if you owe multiple lenders.
      • Don’t Neglect Other Obligations
        1. Compound Interest for your 401k: one of the biggest advantages you have as a young graduate is the power of compound interest. Do not defer making contributions to your 401k if you can afford it.
        2. Pay off high-interest credit card
        3. Fight the impulse of instant gratification: live at the student standard of living as long as possible and contribute that savings to pay off your debt faster.
      • For more finance tips go to cypruscu.com