President Joe Biden’s plan for student loan forgiveness is being decided on this week in the Supreme Court, and it is an issue that is clearly dividing Americans, not just the judges. Meanwhile 26 million applications are pending while both sides argue their differences. If the law passes, some borrowers who received Pell Grants in college will receive as much as $20,000 in student loan forgiveness while the majority will receive $10,000.
Whether or not a substantial amount of your loan(s) will be forgiven, you’ll still have to pay back the remainder of your loan unless you are eligible for the new Income-Driven Repayment options which make paying back loans easier.
Here is everything you need to know about repaying student loans and ways to save money so you can make those payments with ease and possibly even sooner than expected.
Key Takeaways
- The sooner you pay off your student loans, the less you pay in interest.
- You can refinance your student loan for a better interest rate or change to an income-driven repayment plan.
- Make sure you can afford your monthly student loan payments because it may hurt your credit score if you miss payments.
- See if you qualify for income-driven repayment options.
- Lower your insurance bills and pour that money into paying off student loan debt by comparing rates every six months.
Paying Your Student Loans
First, add up your student loans in total, if you have more than one loan. To calculate the percentage of your income that you spend on loans, divide your total monthly loan payment by your income.
If you’re spending more than 20% of your income on student loans, you may need to speak with your loan provider to adjust the payments. Note that if you end up extending your loan to make it more affordable, you will be paying back more in interest.
In addition to a new repayment plan, you also have the option of tweaking your budget to make repayment a little easier on the wallet. Here’s how.
Budgeting for Student Loan Payments
As you begin to do the math of how much money you can afford to pay down your debt each month, you can tweak these percentages, perhaps making your loans a bigger percentage of your discretionary income. Whatever you do, paying less than what you’re scheduled to pay or making late payments will hurt your credit score by around 35%, so make sure you settle on an amount you can handle each month.
Income-Driven Repayment Options
In April 2022, the Department of Education changed Income-Driven Repayment rules, giving credit for time spent in repayment before consolidating loans, time spent in forbearance and deferment, and time in other repayment plans. Credits are expected to be applied July 2023.
There are different types of repayment plans too: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income Contingent Repayment (ICR). Eligibility depends on the type of loan and when the loan was taken out. Here’s what you should know about each:
IBR
You pay 10% of your discretionary income if you are a new borrower on or after July 1, 2014 but never more than the 10-year Standard Repayment Plan amount.
You pay 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount.
PAYE
You pay 10% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.
REPAYE
You pay 10% of your discretionary income.
ICR
Whichever is less:
- 20% of your discretionary income or
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
What You Can Do To Pay Off Your Student Loan Sooner
Save extra cash by looking closely at your bills. Cutting down your insurance bills is a trick that can save you a couple of hundred dollars that you can pour into your student loans. See how you can save on insurance:
Car Insurance
- Compare car insurance rates and save as much as 40% that can go towards your student loans.
- Raise your deductible and pay a lower monthly premium instead.
- Bundle your car insurance with homeowners or renters and save a handful of cash!
- Ask the agent about which discounts they offer and see if you’re eligible.
Renters Insurance
- Compare renters insurance rates to get a better deal than you have now.
- Bundle your renters insurance with your car insurance for a discount.
- Get a discount for having home safety devices, like an alarm or security cameras.
- Increase your deductible so your premiums are cheaper.
Homeowners Insurance
- Compare homeowners insurance rates to see who is offering you the best price.
- Bundle your homeowners insurance with car insurance for a discount.
- Get a discount for having an alarm system and indoor sprinklers.
- Increase your deductible for lower monthly premiums.
Commercial Insurance
- Compare commercial insurance quotes if you have a business.
- After you find a low rate, see if you can save a couple of hundred dollars by switching your renters/home and auto insurance products to the same insurer.
- Raise your deductible to pay less each month.
Better yet, consider bundling all your insurance products when you compare car insurance rates to earn another discount. Also, make sure to shop every six months to save on insurance and pay more towards student loans!
Student Loan Forgiveness FAQs
If I get $10,000 forgiven from my loans will I have a different payment amount each month?
You have many options if the student loan forgiveness plan is passed. You can still keep making the payments as before and finish paying off the loan fast or you can refinance if you think you can get a better interest rate. You can also contact your loan provider about a different repayment plan based on your new balance.
Can I pay off my student loans sooner than 10 years?
Yes, you can pay off student loans as fast as you want. Not only will you increase your credit score (as long as you pay other bills on time), but you’ll pay less interest.
Bonus – Budgeting Tips and Savings Ideas
- Get a side job at least until you pay off the debt.
- When refinancing loans, if your credit score is dragging down your interest rate, ask someone with a really high score to cosign for you.
- Pay more than the minimum due to pay off the loan faster and save money in interest.
- Deduct the interest on your student loan(s) on your taxes.
- Earn a discount by setting up automatic payments.
- See if your employer offers student loan repayment assistance.
- Avoid deferment and forbearance if you can.
- Look into opening a high-interest savings account.
- Cut down on dining out.
- Drive a less expensive car.
- Drive a car that is less expensive to insure.
- Spend less on gas by working remote or move closer to work.
- Create a monthly budget and stick to it!
- Cancel subscriptions and memberships you don’t use.
- Get rid of cable and only use one or two streaming services.
- Adjust your tax withholdings so you get a heftier paycheck and less back at the end of the year.
- Reduce energy costs by washing your clothes in cold water.
- Make your own coffee instead of stopping at Starbucks.
- Learn how to groom your own dog!
- Take “staycations” instead of vacations.
Even if the loan forgiveness plan passes, you may still have outstanding student loan debt, so it’s important to spend some time trying to figure out how to pay off your loans as quickly as you can. The easiest way to pay down your loan faster is to trim the fat from your other expenses. Begin by comparing insurance quotes. When you trim your insurance costs, you can easily pay the difference towards your student loan debt!
