If you’re starting this new decade with student debt, you’re not alone. In fact, the student debt crisis is impacting over 45 million Americans today, including myself and other members of the Summer team. I sat down with my colleague, friend, and Summer’s Head of Borrower Success Bridget Haile to think beyond new year’s resolutions and set up a sustainable path toward debt repayment and financial health.
As we know, many borrowers feel overwhelmed by the burden of student loan debt. What can borrowers do today to get started on the right path?
Bridget Haile: First of all, I would say that I’m sorry, and I know how frustrating and disheartening that can feel. If they have federal student loans, they should take a look at an income-driven repayment (IDR) plan. As the name suggests, a new monthly payment amount will be calculated based on their income, and it could be as low as $0 a month. Their loans will also be discharged after making payments for a certain number of years on an IDR plan. (The exact amount depends on the plan.)
The main thing we’d recommend is to avoid defaulting on the loans, which can really hurt your credit, and can lead to your wages or tax refunds being garnished. You can ask your servicer for a temporary deferment or forbearance while you work on getting into an IDR plan – that will mean that no monthly payments are due.
Not all student loans are created equal. If borrowers want to pay off their debt more quickly, how do you recommend assessing which loans to pay off first?
BH: If you’re in a position to make extra payments on your loans, then good for you! You can find the loans that have the highest interest rates and target them first – that will save you the most money on interest in the long run. (This is also known as the “debt avalanche” method.) Take a look at both your federal and your private loans as well.
If your loans all have the same interest rate, or if you want the mental boost of knocking out smaller loans, you can pay off the loans with the lowest balance first. (This is called the “debt snowball” method.)
How do you think about prioritizing expenses, debt, savings, and investing?
BH: This one really depends on your individual situation. Making minimum payments on debt typically comes first – missing payments on your student loans can have some very negative consequences.
After that, look at your other financial priorities. Do you already have an emergency fund saved up in cash for a rainy day? Have you contributed to a retirement account (like a 401(k) or IRA) this year? How much of your paycheck are you saving every month? These are all good questions to think about. (And talk through with a financial planner or tax professional if you have one!)
Bridget, what’s one more tip that you think would be valuable for borrowers to know?
BH: In general, I’d say the best thing you can do for your loans is to stay on top of repayment. Save all of your documents, be a squeaky wheel with your loan servicer if anything looks wrong, and learn about programs that might help you. (For example, many servicers offer an interest rate discount for setting up auto-payments.)
And most importantly, don’t forget to live the rest of your life! Paying back your student loans can feel stressful and all-consuming, but it’s just one factor of your financial health and personal well-being. Make time (and money) for things that matter to you. You’re doing great, and we’re here to help.
Disclaimer: Information contained on our website is provided for educational purposes only, and your needs may be different depending on your particular circumstances. Summer is not affiliated with the U.S. Department of Education and does not endorse any specific lenders or loan services.