A step-by-step guide to repaying student loans

Student loans can fall into two categories: federal or private loans. The majority of money borrowed is in the form of federal student loans, but a portion of student debt comes from private student loans.

Federal loans are offered by the government, so the terms are often more favorable than those from private lenders. Federal student loan types include Direct Subsidized, Direct Unsubsidized and Direct PLUS.

Direct Subsidized loans are available to students with financial need. The government pays the interest until after your last date of attendance and a grace period, which is usually six months after your last date of attendance.

Unsubsidized loans are not based on student need. Interest payments are not deferred, so the overall cost for this type of borrowing is typically higher.

Direct PLUS loans are for parents of students who want to help with tuition payments. Graduate and professional students can also use this type of borrowing to cover the cost of attending school for a year.

Many students pay for college using several options, including loans and grants, so keeping track of what you owe may not be as simple as looking at one loan statement. You can check the balance of your federal student loans on the Federal Student Aid website. Meanwhile, private lenders offer their own paper statements or provide information via their websites. Make note of the estimated minimum monthly payment amounts so that you can plan for repayment of all your loans.

There are some important details to understand about student loan repayment. For example, depending on the loan, students might receive a grace period after graduation to find a job before their monthly payments begin. You can also work with your loan servicer to make a plan to pay off your loans as fast as possible or take advantage of any forgiveness programs. There are multiple payment plan options to make your monthly payments manageable.

One method for deciding which debts to focus on first is to rank them according to interest rates. You can then focus any additional payments above the minimum on the loans with the highest interest rates. If you make larger lump-sum payments on high-interest debt, you will pay less interest, reducing the overall cost of the loan.

The highest interest rates are usually associated with unsecured loans and credit cards. You can focus on these first unless you are in danger of defaulting on secured loans, which could cause you to lose whatever collateral you provided (e.g., your car or home).

Another method some like to use is the “snowball method.” This approach suggests making minimum payments and targeting low-balance loans or credit cards until they’re paid off. Then, you move to the next highest balance and repeat the process. Each paid-off debt is meant to leave you with more money to put toward remaining debts in the following months. The goal is to gain quick wins as debts are paid off.

A $30,000 student loan can be intimidating. However, it might feel more manageable once you break it down into monthly payments. The key to mastering these monthly payments is to create a budget for all your expenses. You can then find areas to save money and put your savings toward your student loan or other debt payments to, ideally, become debt-free.

Options for saving money for debt payments include forgoing luxuries, purchasing generic products instead of brand names and avoiding excessive entertainment spending.

Most importantly, you need to create a realistic budget that does not force you to forgo basics and leaves some room for a reasonable level of enjoyment and entertainment. For instance, you could choose one streaming service per month and purchase food for a fancy weekly or monthly meal instead of indulging more often.

You should balance your loan repayment ambitions with the need to build savings for retirement, emergencies and unexpected expenses. This could prove challenging, and for some impossible given their current circumstances, but budgeting should be able to at least help get you started on the right path.

Typically, federal student loans with a standard plan are a 10-year repayment period. However, this isn’t always the case for everyone given that life circumstances may prevent payments, or at least higher payments if you are on an income-driven payment plan.

Once you identify your expenses and build a sustainable budget, you should have an idea of how long it will take to repay your student loan. In fact, you can theoretically build a timeline for the repayment of all your debts to not only fully repay your student loans but become entirely debt-free.

Whether you are starting your university education or are years removed from graduation, it is never too early or late to build a plan to pay for your education or pay off your student loans. Learning new strategies, adjusting your financial mindset and exploring repayment plans can all help you manage how you pay for school and pay off your student loans.