When you first started out with student loans, you, like many other borrowers, were probably an intrepid student excited about the college experience ahead.
Fast forward to now, and median student loan debt has climbed to over $57,000 for graduate students. Many borrowers are experiencing the challenges presented by the broken student loan system: high and rising rates, confusing and obscure payment plans, and unhelpful lenders. The U.S. government even decided to create a bureau to help consumers manage these challenges with common financial products.
There’s no time like the present to do what many student loan borrowers don’t realize–you can change the way you repay your loans and even how much you pay. Take these three steps to make sure that each month, every month, your student loans are totally under your control.
Change What You’ll Pay
That’s right: you can change how much you pay. You can get a better interest rate, for instance, by refinancing and consolidating your loans. You’ll have freedom to start afresh with your loans and, if you consolidate multiple loans, manage your monthly payments on one single bill.
Refinancing is essentially repaying your old loans by replacing them with a new loan–a “do over” if you started off with high rates. You can also move from a variable to a fixed rate, secure a lower rate, and more, each of which can have a positive impact on your finances.
This refinance loan calculator shows that if, for example, you have a 10-year loan for $57,000 at a rate of 7.24%, and you refinance that to a new 10-year loan at 6.24% for the same amount, you’ll save more than $4,500–all thanks to lowering your rate by 1 single percentage point. (Note: The calculator assumes that you have signed up for automatic payments on both loans and thus lowered your rate by 25 points, or 0.25%, on both loans. This discount is a common practice for many lenders.)
Change When You’ll Pay
Another benefit of refinancing is the opportunity to select a new term, which could mean lowering your monthly payments by moving to a longer term or saving more in interest overall with a shorter term. Several other repayment programs also exist for federal student loans, including options that tailor your monthly payments to your income.
To show how lengthening a term can lower your monthly payments, let’s use a similar example and say someone has a 10-year loan of $57,000 loan at 6.74%. She will save about $150 each month after moving to a 15-year loan at the exact same rate of 6.74%.
Make Your Payments Manageable… by Changing Up Your Spending
Okay, this isn’t exactly a new repayment option, but moderating your personal budget is key to reaching any financial goal. By reassessing your spending and saving buckets, you may find more money for student loan payments than you’d thought. Even cutting back on how often you buy a morning coffee (over $100 per month in New York) could bridge the gap between a monthly loan payment that’s merely uncomfortable and a payment that’s impossible.
It can be daunting to reshape your student loans after so much time, but the payoff is worth it. Also, make customer service a top priority when you’re vetting new lenders: if they can’t get on the phone to explain your refinancing options now, will they really be a resource when you’re a customer?
Rest assured that with more innovation in the world of lending than ever before–peer-to-peer lending alone is set to hit $1 trillion in loans by 2025–you’re well on your way to becoming debt-free.
This article was originally published on GoGirl Finance.