Debt Dilemma: The Impact of Student Loans on Your Financial Future

If you have student loans, you’re not alone. According to a recent Forbes article, there are roughly 43 million people currently holding federal student loans. This translates to roughly 13% of the United States population! Plus, this number only accounts for federal student loans; it doesn’t even account for the debt owed by private loans or other financing options.

 If you’re a student loan borrower, you’re probably seeing ongoing marketing campaigns for companies that want to help you refinance your student loans. But before you decide to talk to these services or plan for refinancing, it’s a good idea to understand what repaying your student loans can look like and how it might affect your financial future.

Factoring Payments into Your Budget

When it’s time to start paying your student loans back, the first thing you’ll want to do is factor your payments into your monthly budget. By calculating your payments into your budget, you’ll ensure that they’re always taken into consideration when tracking your spending and saving. It’ll also give you an accurate estimate of leftover funds once your student loans and other essential expenses are paid.

If you don’t include your student loan repayment in your budget, you may not have enough money left at the end of the month to pay it. This could cause you to miss payments and fall behind on your debt, which could also impact your credit score and ability to qualify for other loans in the future.

It can be overwhelming and frustrating to discover that you can’t make a payment on your student loans. However, this is a reality that many people face as they work toward paying off their education. If f you’re concerned about being able to make a payment on time, know that there are resources and people out there to support you. Get in touch with your loan provider to see if there’s a possibility of adjusting your payment plan or accessing other services to assist with your loans.

Understanding Your Repayment Options

If you can’t make your full federal student loan payment or need payment relief, it’s important for you to understand your other options. If you aren’t earning enough to make your full student loan payment, you might qualify for an income-driven repayment plan. These plans take your income and some of your expenses into consideration — along with your household size — and determine a payment that is more affordable. They also shift your time to repayment beyond ten years, and they often qualify for loan cancellation after a certain amount of time (typically 20-25 years). You can apply for an income-driven repayment plan through Federal Student Aid, and you can find additional information and the application here. 

With federal student loans, you’ll also have an option to place your loans in temporary forbearance or deferment if you suddenly find yourself unable to pay. These programs can temporarily suspend your student loan payments while you figure out your finances. During these periods, interest will still typically accrue, and any time spent in forbearance won’t count as qualifying payments toward your loan forgiveness. But your payments will be stopped temporarily, allowing you to get back on your feet. To learn more about federal student loan deferment and forbearance and how to apply, visit https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief. 

Impact of Refinancing Federal Loans

If you have federal student loans, you might wonder if refinancing them is a good option for you. When you refinance your federal student loans you are combining some or all of your loans into one new loan with a new provider. This is typically done in hopes of receiving a lower interest rate and saving money.

What’s important to remember is that when you refinance your federal student loans, they will be shifted to a private loan provider. While in some circumstances, refinancing your loans privately is a good option, it’s important to understand how it changes your federal loans and impacts your repayment and forgiveness options. 

When you refinance your federal loans with a private company, you lose certain benefits associated with federal student loans. First, you’ll no longer be eligible for income-driven repayment plans. This is because these plans are only offered to federal student loan servicers. When you refinance your loans, you’ll have to negotiate with your new servicer for different repayment terms, and unlike the federal government, they’re not obligated to change the terms of your loan simply because your income has changed or because you can no longer make payments.

Second, you’ll no longer be eligible for federal loan forgiveness programs. For example, if you work in a profession that makes you eligible for Public Service Loan Forgiveness (PSLF), and you’ve made qualifying payments toward your loans, you’ll lose your eligibility and any chance of having your loans forgiven. So, while refinancing might allow you to earn a lower interest rate, you’ll lose out on the benefits of having your loans forgiven after 120 qualifying payments.

If you’re considering refinancing your student loans, it’s important to think about all the pros and cons and to be sure it’s the best option for your situation. If you don’t feel it’s the right choice, but you’re still having trouble making payments, you can apply for an income-driven repayment plan or contact your federal student loan servicer to see what other options are available to you.

Help create more financing options for higher ed

Student loans are eating up an oversized portion of people’s income, and they’re impacting how people plan for their financial futures — especially if they’re already living on low-to-moderate income. If you’re factoring student loans into your financial health, SaverLife would love to hear your story. Why? So that we can share your feedback with policymakers who can change how students access and prepare for educational loans.

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