Get organized. Borrowers should make a list of all their federal and private student loans, the amount owed, and due dates. Borrowers can log into the National Student Loan Data System at NSLDS.ed.gov to find information about their federal student loans. Another option is for borrows to request a free copy of their credit reports by visiting annualcreditreport.com or calling 1-877-322-8228. (Read the FTC’s warning about copycat free credit report sites that aren’t really free.)
Borrowers should keep the student loan lender informed of any changes in their name, address, telephone number, email address, or marital status.
Sign up for auto-debit on all student loans. Borrowers who repay their student loans through automatic monthly transfers are less likely to miss a payment and, in many cases, may get a slight interest rate reduction on the loans.
Borrowers should claim the student loan interest deduction on their federal income tax returns. This allows borrowers to deduct up to $2,500 in interest paid on federal and private student loans as an above-the-line exclusion from income. An above-the-line exclusion from income can be claimed even if the taxpayer does not itemize.
Try to pay off all student loans in ten years, if at all possible, instead of choosing a longer repayment term. Not only does this save money, but it also eliminates the debt quicker.
Consider using student loan consolidation to streamline repayment. It’s available for both federal and private student loans, but these two types of loans cannot be consolidated together.
Borrowers who can afford to make extra payments should accelerate repayment of the loan with the highest interest rate first. This will save the most money.
To do this, send the extra loan payment with the loan id number and ask the lender to apply the extra payment to the principal balance of this loan. State that the extra payment should not be treated as an early payment of the next month’s payment, as that would mean skipping a payment. The prepayment is an extra payment. Some borrowers will send the extra payment in a separate envelope a day or two after the required payment. This minimizes the opportunities for confusion.
Borrowers who intend to accelerate repayment on their loans should not consolidate them. Loan consolidation replaces all the loans with a single loan with a single interest rate, making it impossible to target the loan with the highest interest rate for quicker repayment.
Borrowers who are having trouble meeting their federal student loan payments should contact their loan’s servicer as soon as possible. Most lenders offer a variety of flexible and affordable repayment options, such as a deferment, forbearance, or alternative repayment plans such as income-based repayment and extended repayment. The disadvantage to using federal deferments and forbearances is that unpaid interest may be added to the loan balance, digging the borrower into a deeper financial hole, so use these options as a last resort.
Borrowers who are already in default should consolidate their defaulted federal student loans into a single loan with a lower payment. Defaulted borrowers can also consider rehabilitating their federal loans by making 9 on-time full voluntary payments within a 10-month period. (This is a one-time option available to borrowers of Direct, FFEL and Perkins loans.) These payments are supposed to be reasonable and affordable. Borrowers should provide the loan servicer or collection agency with information about their financial situation, since this may result in a more affordable monthly payment. Be sure to ask about income-based repayment, which may yield a lower monthly payment. Report conflicts with loan servicers to the Consumer Financial Protection Bureau (private student loans) or the Federal Student Aid Ombudsman (federal student loans).
Undergo credit counseling with a non-profit counselor. Borrowers who struggle with student loans often have problems in other areas of finances.
Stay on top of expenses by creating a descriptive budget. Having a budget can help identify ways to save. For example:
Use public transportation rather than owning a car
Share a room with roommates instead of living alone (or move back in with the parents if the situation allows)
Eat at home rather than eating out
Since awareness is the first step in exercising control over your finances, become financially literate and track your spending for a month. A useful free site to help in the money management process is Mint.com.
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