Which Student Loans to Pay off First 2021 Latest Guide

Which Student Loans to Pay off First 2021 Latest Guide.

Which Student Loans to Pay off First: As a graduate, you are looking forward to living outside and your long-awaited financial freedom. But the reality is, if you had taken student loans to fund your education, the path to that financial freedom you are looking for is repayment of the student loans.

As such, for the first few years after you graduate, most of the money you make will or should go towards paying back your student loans to reduce your debt. So this is when the biggest question comes in: which student loans should be paid off first?

If you are encumbered with multiple student loans, which is definitely not unusual, paying back the student loans is not going to be as straightforward as you might want it to be. Student loans taken from several lenders will typically have different payment plans, varying interest rates, and different balances, too. So, with many factors to keep track of, managing your loan repayment can quickly turn into a nightmare if you are not careful.

How to Tackle Student Loans Repayment?

1. Organize your student

To know which loan to repay first, you need to know the details about all of your student loans. This is what you should know:

• Whether you have private and/or federal loans.
• Whether you have a cosigner on any of your loans.
• Whether you have fixed or variable interest rates on your loans.
• Whether you have subsidized or unsubsidized loans.
• What the interest rates are on your loans.

2. Decide on your repayment plan

After your grace period ends, you will need to select a repayment plan for your student plans.

• For private loans, you may select a standard or extended repayment plan (10 or 25-year plan).
• For federal loans, you may select a standard, graduated, extended, income-contingent, income-sensitive, or income-based plan. Federal loans are also eligible for the Federal Loan Forgiveness program (where federal loans are forgiven after 10 years of working a qualifying public service job).

3. Decide if/how you’ll make accelerated payments

After you’re on a repayment plan and making regular minimum payments, you can determine which loans to pay off faster and in what order.

Note that you should also have other savings established, such as a 6-12 month emergency fund — prior to paying down your student loans faster.

Which Student Loans should you pay off first?

1. First, pay off private loans

Private loans are the most dangerous student loans for various reasons. Frequently, they have variable interest rates, require a cosigner, may not be consolidated, are ineligible for deferment or forbearance, and have limited repayment options.

If you die before repayment in full, the loans become due (which is why, if you have a cosigner, you should have life insurance to cover the amount of debt you have in private loans). For these reasons, private student loans should be your main concern.

At this stage, you should also consider student loan refinancing, which could be a great way to lower your interest rate and possibly reduce your total monthly student loan payments.

2. Pay off loans with a cosigner

Your cosigner did you a huge favor by helping you get loans you couldn’t have, and he/she trusted you to repay them. You should pay off loans with cosigners to repay the favor, maintain a good relationship, and keep your word with your cosigners. Anything could happen to you, and you don’t want someone else to be on the hook for your loans if you’re unable to pay.

3. Pay off Loans with variable interest rates

A variable interest rate on student loans implies that the interest rate changes over time, based on an essential standard rate or index. The risk associated with variable interest rates is that the rate can go up, and you’ll have to pay more. Typically, these will be your private loans (except for some federal loans disbursed between 1998 and 2006).

4. Pay off unsubsidized loans with the highest fixed interest rates

An unsubsidized loan is a loan that accrues interest from the date it is disbursed. When an unsubsidized loan is accruing interest, the amount of interest is added to the principal, and you’ll have to pay interest on the increased principal amount (this is called capitalization).

A fixed interest rate means that the interest rate is set and will not change over the life of the loan. With fixed interest rate loans, there is no risk of the rate increase, which makes them less risky than variable interest rate loans.

Most federal student loans have fixed interest rates that are set by federal law. The higher the interest rate, the faster the interest on the loan grows, and the more money you owe. For that reason, you should want to pay off high-interest rate loans quickly.

5. Pay off subsidized loans with high-interest rates

A subsidized loan is a loan that the Federal Government pays the interest on while it is delayed, in the grace period, and during some other times. As a result, subsidized loans are not accruing interest while you’re in school. Your interest on subsidized loans should be zero when you begin repayment. However, you’ll want to pay down the principal of subsidized loans with high-interest rates to avoid future growth.

6. Pay off unsubsidized loans with low-interest rates

Again, an unsubsidized loan is a loan that accrues interest from the date it is disbursed. However, if the interest rate is very low, you won’t have much capitalization by the time you’re in repayment. Therefore, pay unsubsidized low-interest loans after subsidized high-interest loans.

7. Pay off subsidized loans with low-interest rates

Subsidized loans with low-interest rates are the best types of student loans. You want to put extra money toward these last because the government will have paid for the interest while you were in school, and the interest that accrues during repayment will be the lowest out of all your loans.

StudentsandScholarship Team.