FINANCIAL FRESHMAN #016

TL;DR → The first step toward effectively repaying your student loans is taking an inventory of your debt. Your loans may consist of both federal and private student loans, which you will manage and repay through different channels. With knowledge of your balances, interest rates, and minimum monthly payments, you can start establishing a solid repayment plan.

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The State of Student Loans

If you’re about to finish college, your looming student loans may be a source of anxiety for you. You’ve made the investment in your higher education, and now it’s time to start thinking about how to best manage your repayment. To start, know that you’re not alone.

According to the Education Data Initiative, here is a snapshot of the current state of student loans:

• The total outstanding Federal student loan balance is $1.62 trillion.
• Adding in private student loans would tack on another 9%, bringing the total debt to around $1.77 trillion.
• There are about 43 million borrowers, with the average borrower owing about $40,000.

Ready to tackle your share of the $1.77 trillion in student loan debt? Before diving into repayment, the first step is to take a detailed inventory of exactly what you owe. This week, we’ll break down the differences between federal and private student loans, show you how to find out exactly how much debt you have, and set the stage for basic repayment strategies.

Federal Student Loans

Federal student loans refer to any student loan debts that were funded by the US government. These may include, but are not limited to, direct subsidized loans, direct unsubsidized loans, or Parent PLUS loans. Each of these types of loans are granted after completion of the Free Application for Federal Student Aid, or FAFSA.

Fortunately for the borrower, completion of the FAFSA and inventorying your Federal student loans happen at the same place: studentaid.gov. This website will be your best resource as you work to pay back your Federal student loans. Let’s highlight a few useful resources from the site’s banner.

1. The Federal Student Aid Estimator (Under “Loans and Grants”)
   • If you haven’t started college yet, this is the tool that will help you understand how much aid you can expect to receive from the Federal Government. Comparing this with your expected college expenses can help give you a clear picture of college affordability.
2. Loan Simulator (Under “Loans and Grants”)
   • If you have already accumulated some Federal student loans, this simulator can help you explore repayment strategies, get on a payment plan, or simulate the implications of future borrowing.
3. Who’s My Loan Servicer? (Under “Loan Repayment”)
   • The US Government has contracts with a number of companies to act as servicers for Federal student loan debts. This is who you will actually make your payment to, and it could be Nelnet, Aidvantage, or MOHELA, for example. This page helps you understand who will be servicing your debts, so you can set up an account with them.
4. My Aid (Under Your Name, on the right-hand side)
   • At any point during your borrowing, this page will highlight how much you owe, as well as the loan type, current balance, and interest rate. Keeping tabs of what is on this page will be pivotal to your repayment planning.

Before you must begin repayment, use these resources to better understand and plan for your Federal student loan debts.

Private Student Loans

What if you know that you took out student loan debt, but you are also certain that you never completed a FAFSA? If studentaid.gov confirms that you have no outstanding Federal debts, this means that you took on private student loans. These are any student loans that are granted via a private financial institution, which could be a bank, credit union, or online lender.

These debts can be serviced by a long list of companies, including Sallie Mae, Discover, Wells Fargo, or SoFi. If the specific lender you utilized comes to mind, than you can take an inventory of your debt via that lender’s website. Read our tips below in the event that you don’t know which lender holds your debt.

1. Pull a Credit Report
   • Use a tool such as annualcreditreport.com to view your credit report for free. This report will show you your debts and who is currently servicing them.
2. Check Your Email
   • Search for any paper trail related to your loan applications, approvals, and disbursements. The specific lender’s name will be listed in these documents, if you find them.
3. Contact Your School’s Financial Aid Office
   • Depending on your lender, it’s possible that your school had to be involved to certify the amount you were borrowing. It is also possible that the funds were disbursed to the school directly as opposed to you. In either case, your financial aid office would be able to tell you where the funds came from.

Taking these steps will help you identify your lender, so you can start managing your private student loan repayment effectively.

Repayment Strategies

The steps outlined in this article will guide you through understanding your total student loan debt, including how much you owe, your minimum monthly payments, and your interest rates. Having this information is crucial for creating a realistic repayment plan that fits your financial situation and future goals.

If you have a clear vision of your career path, consider using your projected take-home income to fine-tune your repayment plan. This can help you budget more effectively and potentially accelerate your debt payoff. Remember, the sooner you start planning, the more flexibility you’ll have to tackle your loans strategically.

Next week, we will dive into two popular repayment strategies, the debt avalanche and the debt snowball. We will discuss how to prioritize your loans based on factors like interest rates and loan balances, helping you figure out which approach might give you the best chance of success. Additionally, we will explore how to adapt these methods to fit your unique preferences, ensuring you choose a repayment strategy that not only makes sense on paper but also feels achievable in practice.

Final Thoughts

Whether you’re navigating Federal or private loans, being informed and proactive will empower you to make strategic decisions that align with your future career and income. Stay tuned for practical insights that will help you tackle your student loans with confidence!