Making Sense of Student Loan Repayment

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Over the last couple of years, student loan repayment rules have been a moving target. With forbearance programs inspired by COVID and the new student debt relief legislation enacted by the Biden-Harris Administration, it makes sense if you’re struggling to keep up with all the changes.  

We can help to simplify things. Let’s take a look at the current student debt relief programs, explore what they mean for you and outline a few steps you can take to manage student loan debt.

Federal Student Aid Debt Relief Program

In March 2020, the Federal Student Aid provided temporary relief for students by suspending loan payments and interest accrual. While this has continued over the past two years, the final forbearance extension will go through December 31, 2022. Payments will resume in January 2023.

Biden-Harris Student Debt Relief Plan

Targeting debt relief for low and middle-income families, the U.S. Department of Education will be providing up to $20,000 in debt cancellation for eligible borrowers. Individuals who make less than $125,000 a year (or $250,000 for households), are eligible for this program. To find out more information on your eligibility for the Student Debt Relief Plan and learn more about the repayment process visit Federal Student Aid.


Important Considerations for Student Loan Repayment

As you begin to prepare a strategy for loan repayment, there are two critical considerations:

Relationship between principal and interest: Your monthly payment is made up of by both principal and interest charges. While principal addresses the exact amount of money you borrow from the lender, interest represents the cost lenders charge you to borrow. Interest charges are calculated as a percentage of your principal, therefore, as you pay down your principal, you pay less in interest.

The type of student loan: Generally speaking, there are three types of Student Loan options and each treats interest rate charges a little differently. Subsidized loans have a fixed interest rate that only starts accruing when you graduate. Meanwhile, Direct PLUS Loans and Unsubsidized loans start charging interest while you’re still a student.


Repay Student Loans Strategically

With principal vs. interest and different loans types in mind, here are a few tips to help shape your student loan repayment strategy:

  • Prioritize Unsubsidized Loans: If you’re still in school and have an unsubsidized loan, make an effort to start paying down the principle. While this can be tough as a student, paying down the principal early, helps to reduce the total interest accrued throughout the life of the loan.
  • Take Advantage of Temporary Relief to Pay Principal: As a result of COVID, interest on Student Loan debt is paused until December 31, 2022. By making principal payments now, you can reduce the amount you pay in interest and get ahead of future monthly payments.
  • Consider Consolidating Student Loan Debt: If you are unhappy with your loan terms or have loans with multiple lenders, debt consolidation may allow you to extend your repayment plan and lower interest rates and monthly payments. To understand your best option, Student Loan Consolidation can point you in the right direction.

For more helpful tips, check out our blog on Managing Student Debt to stay ahead of student loan payments.

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