Janice Lozano
If you're wondering where to start with paying off your student loans, you've come to the right place. It's important to know which loan types you have – federal or commercial – and the relevant loan provider. For federal loans, the provider is Federal Student Aid (FSA), which uses servicers like Nelnet or Edfinancial Services to manage billing, payments, and repayment plans. For commercial loans, you may have a different servicer. Once you know your loan type and servicer, you can log in to your online account to manage payments, either as one-time or recurring. You can also sign up for Auto Pay, where payments are automatically debited from your chosen bank account each month. Before making payments, it's a good idea to have a plan and explore options like loan consolidation or forgiveness programs.
| Characteristics | Values |
|---|---|
| Loan types | Federal loans under accounts beginning with E or commercial loans under accounts beginning with D and J |
| Federal loan provider | Federal Student Aid (FSA) |
| FSA servicers | Edfinancial Services, Nelnet, SloanServicing |
| Edfinancial Services payment methods | Auto Pay, one-time or recurring online payment, bank or other online bill pay service, check or money order by mail |
| Nelnet | Federal Direct Loan Program and Federal Family Education Loan (FFEL) Program loans owned by the U.S. Department of Education |
| SloanServicing | Commercially held Federal Family Education Loan (FFEL) Program |
| Loan combination | Direct Consolidation Loans |
| Loan forgiveness | Public Service Loan Forgiveness program, health care agencies' programs |
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What You'll Learn
Understanding loan types
Direct subsidized loans are one type of federal financial aid available to undergraduate students with demonstrated financial need. The interest on these loans is covered by the Department of Education while the borrower is enrolled in school at least part-time, during the initial six months after leaving school, and during periods of deferment. Limits are placed on the amount of subsidized loans that can be borrowed each academic year, depending on the student's year in school and dependent or independent status. For instance, the annual maximum for first-year dependent and independent students taking out subsidized loans is $3,500. The current interest rate on direct subsidized loans is 5.5%, and these loans are eligible for loan forgiveness programs under certain circumstances, such as the Public Service Loan Forgiveness (PSLF) program.
Additionally, dependent students whose parents are ineligible for a direct PLUS loan may qualify for additional unsubsidized loan funds. It is important to carefully consider the long-term implications of borrowing more than is necessary to cover immediate costs, as the interest accrued over time can significantly increase the total repayment amount.
To be eligible for federal financial assistance, families must complete the Free Application for Federal Student Aid (FAFSA). The FAFSA also opens up opportunities for work-study, Pell grants, scholarships, and other forms of financial aid that can help reduce the overall cost of attendance. Experts advise taking every possible step to minimize the need for loans, as interest payments can add up over time.
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Repayment plans
To start paying off your student loans, you'll need to understand the repayment process and the options available to you. Here's a guide to help you navigate student loan repayment and make informed decisions:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan): This plan is available to all federal student loan borrowers and sets your monthly payment at 10% of your discretionary income. Any remaining loan balance will be forgiven after 20 years of qualifying payments for undergraduate studies and 25 years for graduate or professional studies.
- Pay As You Earn Repayment Plan (PAYE Plan): The PAYE plan is similar to REPAYE but has different eligibility requirements. It also sets your payment at 10% of your discretionary income but is only available to borrowers who took out loans after October 1, 2007, and those who received a disbursement after October 1, 2011. Like REPAYE, it offers loan forgiveness after 20 or 25 years of qualifying payments.
- Income-Based Repayment Plan (IBR Plan): There are two types of IBR plans: IBR for new borrowers (those who took out loans after July 1, 2014) and IBR for older loans. For new borrowers, the plan caps monthly payments at 10% of discretionary income and offers loan forgiveness after 20 years of qualifying payments. For older loans, the cap is 15% of discretionary income, and forgiveness occurs after 25 years of qualifying payments.
- Income-Contingent Repayment Plan (ICR Plan): The ICR plan is available to all federal student loan borrowers and sets payments based on either 20% of your discretionary income or the amount you would pay on a fixed 12-year repayment schedule, adjusted according to your income. Loan forgiveness is offered after 25 years of qualifying payments.
In addition to these income-driven plans, you also have the option of choosing a standard repayment plan, which evenly divides your loan payments over a set number of years (typically 10 years) without taking your income into account. There are also graduated and extended repayment plans that offer more flexibility in payment amounts and schedules.
When selecting a repayment plan, consider your financial situation, income stability, and long-term goals. Income-driven plans are ideal if you work in a field with lower earnings or face financial challenges, as they provide more affordable monthly payments and the possibility of loan forgiveness. However, keep in mind that you may end up paying more in interest over the life of the loan with these plans. If you can afford larger monthly payments and want to minimize the total cost of your loan, a standard repayment plan may be a better option.
Remember, you're not locked into one plan forever. You can change your repayment plan at any time, although you'll need to reapply and provide updated financial information. Review your options regularly and make adjustments as necessary to ensure that your repayment plan continues to meet your needs and financial circumstances.
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Loan forgiveness
If you are employed by a public service organisation, you may be eligible for the Public Service Loan Forgiveness (PSLF) Program. This includes employees of any state, local, or tribal government, and certain non-profit agencies, such as specific non-profit organisations, the U.S. military, or federal organisations. Public service employees can use guides to make sure they are on track for loan forgiveness. This includes firefighters, police officers, nurses, and other emergency service employees.
PSLF allows qualifying federal student loans to be forgiven after 120 qualifying payments (10 years) while working for a qualifying public service employer. Only federal Direct Loans can be forgiven through PSLF. You can use the PSLF Help Tool to figure out your next steps. This tool is provided by the U.S. Department of Education (ED) and is free to use.
Most federal student loans are eligible for at least one income-driven repayment (IDR) plan. IDR plans cap your monthly payments based on your income and family size. If your income is low enough, your payment could be as low as $0 per month. Depending on the IDR plan, the remaining balance on your loans may be forgiven after 20 or 25 years of repayment. Any borrower with ED-held loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if the loans are not currently on an IDR plan.
On April 19, 2022, the Department of Education (ED) announced several changes and updates that will bring borrowers closer to forgiveness under IDR plans. ED will do a one-time adjustment to count any month spent in repayment, some deferment periods (prior to 2013), and some forbearance periods toward loan forgiveness.
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Payment methods
There are several ways to pay off your student loans. Firstly, you can make an account on StudentAid.gov and use their dashboard to find out who your loan servicer is. You will need to make an account with your servicer to send them money.
You can also pay your student loans online. You can add your bank account information and pay online by logging into your account. You can also make online payments in conjunction with auto-debit, where your payment is automatically withdrawn from your bank account each month. You can also use the Sallie Mae app on your iPhone, Android phone, or Apple Watch to make and manage your student loan payments.
Another option is to mail a check or money order to the borrower payment address. Make sure to mail your payment at least 10 days before your due date so that it is credited on time.
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Tracking and combining loans
To start managing your student loan debt, you first need to know what you owe and to whom. Here's how to track down your student loans and get a clear picture of your debt:
Find Out Who Services Your Loans: If you took out federal student loans, the US Department of Education is your lender. However, they work with loan servicers, which are companies that handle billing, loan payments, and other administrative tasks. To find out which servicer(s) you have been assigned, you can log in to your account on the Federal Student Aid website. There, you'll see a summary of your federal student loans, including the type of loan, the servicer, and their contact information. For private student loans, you'll need to review your credit report to find out who your lender is. You're entitled to a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) every year through annualcreditreport.com. Check your reports to identify any private student loan accounts and the associated lenders.
Create an Account with Your Loan Servicer(s): Once you know who your loan servicer(s) is, create an online account on their website. This will allow you to view your loan details, including the current balance, interest rate, repayment status, and due dates. Having online access makes it easier to keep track of your loans and make payments.
Keep Records: It's important to maintain your own records, especially if you have multiple student loans. Create a spreadsheet or use a loan tracking app to list all your loans, including the type of loan (federal or private), the lender or servicer, the current balance, interest rate, monthly payment amount, and due date. Update this regularly to reflect any changes and to help you stay organized.
Consider Consolidating or Refinancing: If you have multiple student loans with different interest rates and due dates, you might want to consider consolidating or refinancing to simplify your payments. Loan consolidation combines multiple loans into one, giving you a single monthly payment and a fixed interest rate based on the average of your previous loans' rates. Refinancing is when you take out a new loan with a private lender to pay off your existing loans, ideally at a lower interest rate. This can also allow you to switch from a variable to a fixed interest rate and change your repayment term. Keep in mind that refinancing federal loans with a private lender will cause you to lose access to federal benefits and protections, such as income-driven repayment plans and loan forgiveness programs. Weigh the pros and cons before deciding to refinance federal loans.
By taking these steps to track and organize your student loans, you'll be in a better position to understand your repayment options and develop a strategy to manage your debt effectively.
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Frequently asked questions
You can start paying your student loans by logging into your online account on your loan servicer's website. Your loan servicer is the company that manages billing, payments, and other customer services for your loan. Common loan servicers include Nelnet and Edfinancial Services.
If you have federal loans, your loan provider is the Federal Student Aid (FSA) and you can log in to StudentAid.gov using your FSA ID to find out your loan servicer.
You can pay your student loans online through your loan servicer's website, or by mailing a check or money order to the payment address listed on your billing statement. You can also sign up for Auto Pay, where your payments are automatically debited from your designated bank account each month.
