This post is in partnership with Lexington Law, thank you for supporting brands who support TCM. As always, all thoughts, opinions, experience, and advice is my own.
Congratulations! You've graduated college and now have student loans to look forward to! Personally, student loans are a topic I've been avoiding… I get SO many questions about them, but honestly they kind of scare me. There are so many different programs, state specific loop holes, and the like, I simply never felt comfortable tackling the topic alone. Which is why I'm thrilled to have John Heath, The Directing Attorney at Lexington Law Firm, help me out with this post! He's going to share his insights to your student loans questions!
Let's get your student loan questions answered!
Can I refinance my student loan rate even if I believe it's the lowest rate?
JH: Yes, you can refinance your student loans. It is important to do your research before taking this step. Make sure the bank or refinance company is reputable and is offering you the best terms (payments, late fees, grace periods) and interest rates for your loan.
What is a good goal for number of years to pay off student loans, generally speaking?
JH: This will depend on the individual consumer. Some factors that you should take into account are:
i) What is the balance of the loan? Higher balances will mean higher payments if you are shortening the term of the loan;
ii) Is there a lower interest rate that you can take advantage of if you compress the payment period;
iii) Can you afford to make larger payments in a more compressed timeframe; and
iv) What makes the most financial sense to your situation.
For me specifically, I'm 6 years out of college with more than $30,000 in loan debt & pesky interest that keeps accumulating. I have a combo of private and federal loans, some of which are still in forbearance because I can't afford to pay them all. If I refinance with a fixed rate interest (that is lower than or equal to the current loan interest), is this a responsible choice & a reasonable way to take control of the looming debt / eventually get them paid off?
JH: If you can get a lower interest rate and you can afford the payments, this is a good thing to do.
Would you recommend paying the highest amount first or the lowest?
JH: I would pay off the amount with the highest interest rate first.
How can you get money off your student loans (like by working for a nonprofit or any other ways?)
JH: There are several programs that offer types of loan forgiveness or payoff. Some of these include public service positions such as teaching (some are state specific), the military as well as other service oriented careers that cannot competitively hire in the private sector.
Is it true you get your student loans forgiven if you work for a nonprofit for 7 years after graduating?
JH: It depends on the program. For example, under the Public Service Loan Forgiveness program (PSLF), you must make 120 on time student loan payments before the loan is forgiven. That is a period of ten (10) years.
How can student loans be forgiven?
JH: There are public service programs that allow for this such as the PLSF. Student loans are notoriously difficult to have forgiven in bankruptcy. In order for this to occur, you may need to show that you suffer from a catastrophic injury or illness making repayment impossible.
Which is better – paying off the interest or the principle of a loan first?
JH: It is better to make larger payments that target the principle. Concentrating on interest will draw the repayment period out costing you more money.
I've gotten a bunch of mailers and seen ads from a company that provides student loan refinancing (and other things), but I'm worried there's something I'm missing. What should I know before working with a company like that? What are the potential negative impacts? Can they hurt my ability to pay off my loans?
JH: Do your due diligence. Research these companies. Look to state consumer protection agencies, the BBB and even websites like Yelp to see if these companies have problems. Then assess your situation and determine if a refinance is right for you.
How can you pay off loans the quickest/ least amount of interest way?
RR: I've actually written a post on this before – How To Repay Debt [ Two Strategies To Change The Game]. The short answer, is to start with whatever has the highest interest rate. However, that isn't always the best method for everyone, so I'd recommend reading that post for more details.
How do I handle debt? I've never had student loans and I'm afraid to pay them off.
RR: Don't freak out! Debt has this big bad scary name, but it's not something to be feared. First, recent stats show that millennials have about $42,000 in debt on average, and most of it ISN’T from student loans. I point this out because there's a difference between the debt you may be thinking of and student loan debt right off the bat. Most of the time we hear people gripe about revolving debt (credit cards) – not installment debt (student loans). Installment debt you know what you're getting each month, your revolving debt can change each day. So take a deep breath right there since you can easily add a monthly installment debt payment into your budget without any surprises (it becomes a fixed cost). Now if you're trying to tackle debt more aggressively, I'd recommend checking out this post I wrote on two debt repayment strategies.
If you're feeling stumped or overwhelmed about handling your finances, be sure to check out the professionals at Lexington Law Firm. They have helped hundreds of thousands of clients take action and repair their credit over the years. Unlike other credit repair companies, they don’t trick the bureaus into changing your report. Instead they leverage every legal standard available to consumers to ensure both accuracy and fairness. They also work with their clients to repair their credit with integrity and provide tons of educational articles to ensure clients have all the tools they need to make long lasting, meaningful changes to their spending. Learn more about getting started with Lexington Law Firm here.