Even though student loans do not work as other short-term loans, they can throw you deeper under debt. Most of the students fail to pay off student loans on time, which leads to nothing but late payment fees and interest penalties. No matter how affordable the interest rates are, it becomes difficult to pay back money if you are living from paycheque to paycheque.
Failing to pay off loans for students will pull your credit score, making it difficult to borrow money at a lower interest rate down the road. Whether the size of your loan is small or big, you can easily tackle the repayment in the following ways.
Look into repayment plans
Whether you have completed your education or not, whether you have got a job or not, you cannot avoid paying back your debt. Ignoring the payment will push you on the verge of a financial crisis. Therefore, you should talk to your lender to put you on the other repayment plan if the current one is not working for you.
- Graduated payment plan
This plan allows you to pay your debt over a period of 10 years. As the name suggests, the size of instalments will continue to rise over a span of the loan. It generally rises after every two-year period.
Note that you may end up paying more than the other loan options because of the extended period. You may struggle to repay your debt if your income stays stagnant.
- Income-based payment plan
This plan will allow you to pay off your debt based on your income. It generally includes 10% of your income. However, the total paid amount cannot be more than the 10-year standard payment plan. As your income rises, the payment will hike, and as the income drops, the payment will shrink.
- Income-contingent repayment plan
The repayment length of a student loan will extend up to 25 years. You will pay 20% of your income or fixed instalments based on a 12-year loan term, whichever is lower.
Note that each payment plan works differently and not all borrowers are eligible for each plan.
Employers can also help you
Knowing the fact that employees who work under debt are less productive than those who do not have financial problems. Companies want to hire talented and productive people and in order to avoid losing them, they have begun to add “student loan reimbursement” facility in the list of current benefits.
When you start finding a job, consider applying to employers who are offering this facility. Employees receiving reimbursement facility can have the payment period reduced by 30%. Talk to your human resources department to see if they offer this benefit. If it’s not part of your current benefits package, ask them to consider adding it.
Consolidate your student loans
By the time you graduate and start finding a job, you may have taken out several student loans. Each of them will have a different interest rate and a repayment term. It can be quite tough to handle all of them simultaneously. Therefore, you should consolidate all your student loans. Consolidation will help you save time and money.
Seek loan forgiveness
You must pay off your loan even if you do not complete your education, cannot find employment in your field, or not satisfied with your education. The money belongs to somebody else, and hence you cannot fight shy of this obligation. However, there are certain conditions you need to meet to avail of this facility.
- You cannot get forgiveness for private student loans.
- If the repayment is beyond your control, you can seek loan forgiveness.
Loans for students in the UK can be difficult to pay off if you do not try to be creative with money management. The rule of thumb says that you should cut back on your expenses. The more you save, the sooner you will get rid of the debt.