Our Thinking

Student Loan Repayment Strategies

April 30th, 2012

In our practice, we frequently get the opportunity to provide pro bono advice to graduate students who have accumulated a significant amount of student loan debt.  The facts are staggering…2/3 of all college students graduate with student loan debt and this year the total amount of outstanding loans will surpass $1 trillion. If graduates don’t have a debt reduction strategy in place, they could end up costing themselves thousands of dollars in interest.  But there is no reason to fear, as reducing debt is not as difficult as it may seem.  Here are a few tips that will help you prioritize your debt reduction strategy.

1.) Whether your student loans are federal (subsidized or unsubsidized) or private, pay off the highest interest rate loans first.

Interest is not your friend, so the higher the rate, the more it’s going to cost you to pay off.

2.) Pay off your loans in 10 years or less.

Increasing your loan repayment period greatly increases your total borrowing cost. A jump from 10 years to 15 years increases your interest cost by 57%…Pushing it to 20 years results in a 118% increase. For example, if you borrowed $20,000 at 6.8% interest and paid it off in ten years, you would pay $7,619 in interest. If you paid it back in 20 years, you would pay $16,639 in interest, or $9,020 more.

3.) Explore other repayment options.

With federal loans, there are multiple ways to repay and you can even have your outstanding loan amount forgiven. Generally speaking, make sure that you aren’t increasing your long term interest expense when choosing a repayment option. If you work for the government or have a very low income, be sure to check with your federal loan provider to see if you qualify for loan forgiveness.

For more information on student loan repayment, pro bono services, or our firm, please contact us at info@cddwealth.com.