Game of Loans – A Guide to Defeating Student Loan Interest

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Interest is Coming….

In the hit HBO series Game of Thrones, royal families prepare to go to war against each other in a quest for power. Recent college graduates are about to go to war as well…. war with student loan interest.

Maybe you’ve been out of college for some time now and are currently battling interest. If that’s true then you know it’s a long exhausting fight. A fight most of us are unprepared for as we blindly pay away our earnings. Worry not, there are some weapons you have to gain the upper hand against interest.

Times have changed and with change most graduates are met with crippling student loan debt that will limit their ability to buy a home, save for retirement, or start a business. Student loan debt is at an all time high of $1.2 Trillion (yes, trillion,) which is well beyond the amount of America’s credit card debt, which is only $884.8 Billion.

Part of the problem are the high interest rates on student loans. Once you’re locked into a student loan, there is no refinancing and the interest is stuck with you forever.

Prepping For the War Against Interest

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If you recently graduated and have not started paying your loans yet, the first thing you should do is get familiar with your loans. Keep track of your lender, balance, and repayment status. Make sure you contact loan services with any questions you may have. Update loan services with any current contact changes. Out of date contact information can be detrimental to your account if your lender needs to contact you and cannot do so.

Know When Your First Payment is Due

After graduation, your first payment will be here before you know it. Make sure you know how long your grace period is. When is your first payment? Stafford loans are typically due 6 months after graduation, Perkins loans are usually 9. Private loans usually start much sooner. Find out when your first payment is and DON’T MISS IT! Don’t be afraid to contact your lender to find out when your grace period ends.

Pre-Pay Your Accounts

If you are financially able to do so, pay more towards your accounts. This could be your greatest weapon in the war against student loan interest. Making payments before your first payment is due and/or paying more than the amount due will result in paying less interest in the long run. Make sure you let your lender know the extra amount is to be applied to the loan balance. Otherwise, they may “credit” the amount to a future payment.

Target the Most Expensive Loan First

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Gain the advantage in the interest war and take out the giant first! Find out which loan you are paying the most interest on and attack! Make extra payments towards that big loan and keep at it until it is no more. Once you’ve knocked off that loan, take aim at the next loan with the most interest, and so on. Private loans will most likely be the first to go. This is due to the fact that they have higher interest rates and aren’t as flexible as federal loans.

Eliminating loans with the most interest means you’ll ultimately be paying less in the long run.

Don’t Default

Missing or making late payments will not only make your loans more difficult to pay off and will destroy your credit for years to come. Missing enough payments will put your loan in default, causing your a lifetime of financial trouble. Once a loan hits default, prepare for battle with collection companies. Collection companies can be ruthless and will stop at nothing to get you to pay.

Defaulting on your loans may even cause your wages to be garnished. When this happens, the government will forcibly go into your bank account or paycheck and take out what it needs until your loans are paid off. Leaving you with nothing but an empty bank account and horrible credit score.

It’s also worthy to note that defaulting on private loans will bring your co-signers down with you. This will affect their credit and can potentially hurt them from getting approved. If you can’t afford your loans, don’t just ignore them. There are ways to get back on track without destroying your or your co-signer’s credit.

Trouble Making Payments? Don’t Surrender!

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Everyone goes through rough times and student loans aren’t exactly cheap.  Don’t give up if you are struggling to pay your loans! You have options to help get you back on track.

Change Your Repayment Plan

Contact loan services and see if you can change your repayment plan. You may be able to pay less each month with extended payments. Another option is a graduated payment plan. This will start you off with lower payments that increase over time. You may also tie your payments into your income. Making your loan your number one priority. Automated payments on dates your paycheck gets cashed can ensure you have enough to pay and are paying on time.  Changing your repayment play will have you paying more in interest over time, but it’s much better than destroying your credit.

Deferring Payments

If you will be out of work for some time you may be able to defer your loans to a later date. Going back to school, unemployment, or enlisting in military service are all reasons someone may want to defer their loans.

Just keep in mind you are still accruing interest during those months you aren’t paying.

Forbearance

If you’re struggling to pay the bills and don’t meet the requirements for deferment, forbearance might be your solution. If your loan servicer grants you forbearance you may be able to stop making payments or reduce your payments for up to 12 months. Financial hardship and illness are just a few reasons individuals seek forbearance.

Consolidation

Student loan consolidation comes with its many pros and cons. consolidating multiple loans will help you keep track of your debt and better manage your loans. The interest rate of all your loans will be averaged out into a fixed interest rate. If you’re struggling, this could mean less in monthly payments. There is also no minimum or maximum needed to consolidate your loans, making it easier for consumers to obtain.

You cannot include private loans in a federal consolidation. However, on the flip side, you may included federal student loans into a private loan consolidation. This is usually not a good idea as the interest rates for private loans are usually much higher. Another downside is you may be missing out on some cancellation benefits (more on these later.) Perkins Loans have cancellation benefits that will be voided if you consolidate it. Police, firefighters, and teachers are among those who may qualify for cancellation benefits that will disappear once the loan is consolidated. Keep in mind also, once you consolidate there is no going back. Your interest rate is fixed and you are stuck with it even if rates fall after your consolidation.

Winning the Fight

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So you’ve managed your loans pretty well, you’re on a good path, but you’re looking for that secret weapon to win the fight. Under the right circumstances you may qualify for student loan forgiveness, cancellation, or discharge.

School Closing Discharge

If your school closed during your enrollment or shortly after you withdrew (120 days.) Your loans can be discharged. If this is something that has happened to you, contact your loan servicer to get the application.

You are not eligible for School Closing Discharge if you withdrew more than 120 days prior to the closing, are completing a similar program at a different school, or have completed all of your coursework.

Teacher Loan Forgiveness

Teachers rejoice! You may qualify for Teacher Loan Forgiveness. The Teacher Loan Forgiveness program was created to encourage individuals to enter the teaching profession. If you qualify, you may be eligible for forgiveness up to a total of $17,500. Those who are eligible must not be in default of their loan and must be teaching full time 5+ years. One of those years must be in a qualifying school district.

Public Service Loan Forgiveness

Any current full time employees working in public service jobs may be eligible for the Public Service Loan Forgiveness Program. To qualify, you must make 120 on-time, full, scheduled, monthly payments on your loan. The only loans eligible for forgiveness are loans received under the William D. Ford Federal Direct Loan Program. Federal Family Education Loans and Federal Perkins Loans are ineligible. However, you may become eligible by consolidating your FFEL or Perkins loans, but your 120 payments won’t count until you start making payments on the new consolidated loan.

Perkins Loan Cancellation Benefits

There are a variety of jobs eligible for Perkins Loan Cancellation Benefits. Some qualifying jobs include: teachers, nurses, police officers, and firefighters. To find out if you qualify, contact your loan servicer.

Take Action!

Now it’s up to you. Prepare for war with interest. Map out your game plan and student loans may not seem as intimidating as they were before. If student loans have gotten the best of you in the past or you would just like some little more information, fill our the form below and we would be more than happy to take a look and point you in the right direction.