I regularly meet pharmacists, lawyers and MBAs with $200,000 in student loan debt, struggling to pay off interest years after graduation. When you borrow money to invest in your education, you know that paying interest on that student loan debt is simply part of the deal. But interest can seem like an abstract notion when you first take out loans. Over time, it becomes a force to be reckoned with, especially if you have six-figures worth of student loan debt to repay. Fortunately, as the student loan market has grown, so too have the repayment options available to borrowers. There’s also the option to refinance using a private loan, given today’s historically-low interest rates. Here’s what you need to know about various repayment plans, as well as student loan refinancing.
The case for refinancing
Refinancing student loans is similar to refinancing a mortgage. If you’re able to refinance your student loans at a lower interest rate, you may be able to:
- Save money on total interest
- Make lower monthly payments
- Shorten the loan term
- Switch from a fixed-rate loan to a variable-rate loan, or vice versa
- Simplify your monthly bill through consolidation
Hidden dangers in student loan debt repayment plans
There’s a lot of misunderstanding, even among highly-educated professionals, about the details surrounding their student loans. To start, many students take out federal student loans. Federal loans offer a few different repayment options that are not available with private lenders, including a graduated repayment plan where payments start small and increase over time. There are also income-driven repayment plans that allow borrowers with high debt-to-income ratios to make lower monthly payments, with the remaining principal eligible for forgiveness after 20 to 25 years.
The problem with relying too heavily on the details in outlined by the government is that the rules can change. In the course of a 25-year repayment, you have the potential for seven different presidents and 13 different Congressional sessions.
Some borrowers may choose to refinance federal student loans using a private lender. This may lead to a lower interest rate or better terms, but can mean sacrificing some of the protections built in to federal student loans and the associated repayment plan.
The wisdom of professional help
It’s confusing, complicated and time-consuming to figure out all of the details and competing factors that can influence student loan repayment. Especially if you already spent years studying law, medicine, or business. This is one area where a specialist, like a financial planner, can help. After all, the consequences of a misstep can cost you significantly — potentially thousands of dollars in interest.
No matter how confusing you feel like your student loan debt is, Envision Wealth can help you develop a detailed, customized plan. Any money we’re able to save you an be reallocated to a better quality of life. That may mean buying a home, buying a business, building a family or growing your wealth.
Connect with us so we can learn more about your situation to see how our team might reduce your burden.