Amara walker October 18, 2023

Although there is a possibility of forbearance of student loans, you cannot be reckless with the payments. Even if you have taken out federal student loans, you are supposed to pay it off on time. On the contrary to personal loans, student loans are way easier to pay off, thanks to income-driven repayment plans.

When you earn more than the threshold income, you will pay down the instalments, and you will not. When you have other debts, it is likely possible you give priority to other debts, but remember that your student debt will also affect your credit rating if you miss the deadline.

On-time payments of student loans can help build your credit score, but on the contrary, non-payments can ding your credit points. Here are some of the tips that can prevent you from falling behind on student debt payments.

Understand how student loans work uniquely

Student loans do not work the same as personal loans, so first, you need to understand what steps will have a bad impact on your credit score. Even though the debt uses income-driven payment methods, interest accrues from the first day you are sanctioned the money. You are entirely responsible for the whole debt settlement regardless of the repayment plan you have opted for.

The rule applies to both federal and private student loans. Talk to your lender about their policy about deferment or forbearance. If you miss a payment, you become a delinquent, and if you continue to do so, your account will become default after 270 days.

However, it becomes default in 90 days in case of a private student debt. Note that the default will show up on your credit report. After your account goes into default, the lender will take you to court to collect payments. The consequences are severe if you default on a federal student loan. You will be stripped of all federal student aid and benefits.

If you cannot pay or struggle with federal student loan payments, consolidation is an option. Private student lenders could be willing to negotiate with you. The sooner you talk, the better.

Take control of your student loans

Once you have understood all the details of a student loan, the next step is to set up a few strategies to prevent a default. Understand how much you owe.

  • Make a list of all student loans you owe and then categorise them if they are federal or private. Check the type of repayment plan. Private lenders will generally require you to start making payments immediately after the approval.
  • Check how student loans fit into your budget. If not, try to whittle down your expenses. Do not forget to take into account other debts, such as loans for bad credit.
  • If you still find it harder, ask your lender if there is a possibility to opt for a different payment plan.

Set strategies to save your money

With the following strategies, you can save a lot of money in your student loan payments.

  • Direct debit scheme is available for both federal and private loans. Make sure you opt for it. Chances are you can get a discount of up to 0.25% on your interest rates.
  • Extra payments are always welcomed. If you have a surplus, make sure you utilise it for a student debt payment. Inform your lender beforehand that the extra payment should only go toward the principal amount.
  • Claim your student debt interest on our tax returns. However, not everyone can qualify for it. Check if you meet the approval criteria. If you are eligible, you can claim up to €2,000 a year.
  • A lender might offer multiple payment options you. However, if you have a chance to opt for an income-driven repayment plan, you should opt for this one. This is a better plan than deferment because the latter will only add up to your monthly payments.
  • You will have to update your income status and the number of households if you opt for an income-driven repayment plan. Make sure it does not slip through your mind; otherwise, you will be put back on the standard plan.
  • Do not stop contributing to your retirement plans because this will lower your gross income, and so will lower your monthly instalment. This will particularly help you if you are looking for forgiveness, but bear in mind that there are conditions to meet to qualify for it.

Make changes in your habits

Student loans are not a joke, so do not treat them that way. How you tackle them will have an impact on your credit score as well as on your future borrowing ability. If you are reckless with your spending, you will naturally face difficulty paying off the debt.

  • Use your credit card wisely. Make sure this does not affect your repayment ability. If possible, you should avoid it. Use cash for all transactions.
  • Keep tracking your expenses. If the loan gives you a hard time, you should switch to a lean budget. This will ease the burden on your pocket. However, it is not a permanent solution to your financial problems.
  • Do not borrow money if you do not need it. Set aside money for unexpected expenses. If you take out a quick loan in Ireland, try not to borrow more than your need.

The bottom line

A student loan should be treated like any other debt. They can make or break your credit score. Whether you take out a federal student loan or a private student loan, you cannot wriggle out of repaying your debt. Although forgiveness is an option, not everyone can qualify for it. Try to choose a repayment plan that works for you. Talk to your lender to see if they can offer you any help if you are struggling with payments. Make smart moves so you do not end up racking up the debt.