FAQ's About Student Loans
Is it good to maximize your 401k while you have student loan and CC debt?
If you are fortunate enough to work for an employer that offers a 401K matching program, then you should absolutely take advantage of the benefit. However, it is important to make sure that you are paying the minimums on both your credit card debt and student loan debt.
Advice on buying a home while you have student loan debt.
Student loans should not prevent you from doing anything in your life. As long as you get your loans to a place where they are affordable each month and you have a clear schedule for repayment, you will be able to save for larger purchases like a car or a home at the same time!
How do you lower interest rates on student loans if they are federal?
The only way to lower and interest rate on a federal student loan is to refinance the loan. We do not typically recommend this to clients, so we advise you to speak to a Certified Financial Trainer before you go ahead and do this. However you can make your federal student loans more manageable by consolidating them. This will merge all your existing balances and interest rates into one loan so that you can just make one payment per month. You are technically not saving on interest when you do this, but it makes the repayment process more straightforward. This all goes to say that it is not always best to pay back your student loans as quickly as possible. There are plenty of other things to save for and all of your money does not need to go to student loan repayment. There are often benefits to having federal student loans versus private loans, even if they come at a higher interest rate.
What is the difference between income-based repayment and pay-as-you-earn repayment?
The difference between these two repayment methods is simply the percentage of your discretionary income that you end up paying towards the loans monthly. When you begin repayment, you will be offered many repayment options and what it will ultimately cost you over time. You can look into this on the Federal Student Aid website. The percentages usually range from 10-15% of your discretionary income.
Does 401K savings count towards saving 15% of your income?
Yes, 401K savings counts towards your overall savings goal! If you aim to save 15% monthly, you can include the percentage of funds going into retirement as part of this. Other buckets that make up your overall savings are your emergency fund and long term investments. 15% of your income is a great place to start saving, but we recommend working towards saving 20-25% or more monthly when you are able to!
Do you recommend making extra payments on your student loans if you are on an income-based repayment plan and have the possibility of receiving public student loan forgiveness?
No, if you are hoping to receive public student loan forgiveness, then you just need to make the minimum payment monthly and maintain the hope that the remainder of your payment will be paid off!
Save money or pay extra to student loans during this deferment period?
Save the money that you would have been paying on the loans for the time being. Come September, you can decide to make a lump-sum payment before interest accumulates again if you feel like you do not need the money in savings. If you like seeing that extra cash in savings, then do not pay extra and instead wait until you must resume payments this fall.
Ready to take your finances to the next level?
To get started schedule a free 20 minute consultation call to speak to a member of our team. We will ask you a few basic questions to get to know you more, walk you through our financial training program steps, and of course answer any questions you may have. No pressure to join!