College isn’t the right fit for everyone. Unfortunately, it may have taken you a few semesters of college to figure it out. If you took out student loans to help pay for college, you’re likely stuck with student loan debt and no college degree to show for it.
So, what should you do about your student loans after you’ve dropped out of college? Here are a few options you can use to manage and repay your student loan debt.
Pay off your student loans the old fashioned way
Paying off student loan debt is a pretty straightforward process. Since you’re unlikely to get student loan debt discharged in bankruptcy, you’re going to have to push through it and work to pay off your student loan debt sooner or later.
Because your student loans will likely be incurring interest, it often makes sense to pay them off as soon as possible. Here are three traditional ways you can pay off your student loan debt.
Pay loans off according to the repayment schedule
The first option is simply paying your student loan debt off according to the repayment schedule.
For instance, federal student loans typically come with a 10-year repayment schedule. Simply make your payments on time each month and you’ll be out of student loan debt according to your loan’s terms.
Make extra principal payments using the debt snowball
One way to pay your loans off faster is by using your extra principal payment to pay off the smallest loan balance first. This method is called the debt snowball and is best if you need a quick mental win.
Essentially, you apply extra payments to the smallest loan and make the minimum payments on all other loans. This will allow you to pay off one of your loans in the shortest time possible.
Once you’ve paid off the first loan, take the minimum payment and extra principal payment you made on the smallest loan and apply it to the next smallest loan. Eventually, all of your student loan debt will be paid off faster than if you simply made the minimum payments.
Make extra principal payments using the debt avalanche
If you want to pay your loans off as fast as possible, another option will pay your loans off faster than using the debt snowball. The debt avalanche works very similar except you pay off your highest interest rate debt first.
After you pay off the highest interest rate loan first, you then pay off next highest interest rate loan and so on. This will allow you to pay the least amount of interest and pay off your loans as fast as possible given the amount of money you have available to make payments.
Consider alternative payment arrangements
If your loans are federal student loans, you may qualify for different repayment options. For example, you may qualify for a pay-as-you-earn repayment plan. This limits your monthly payments to 10 percent of your discretionary income.
Other potential federal student loan repayment plans include the income-sensitive repayment plan, the income-contingent repayment plan, the income-based repayment plan, the extended repayment plan, and the graduated repayment plan.
You can learn more about these plans at Federal Student Aid.
Private loan lenders typically don’t offer alternative payment options
If your current loans are private student loans, you’ll have to check with your lender to see if you have any alternative repayment options.
Private student loan lenders do not have to offer other repayment options but may do so if they feel it is in their best interests.
Can and should I refinance my student loans?
Student loans for uncompleted degrees cannot be refinanced
It’s important to note that student loans taken out for a degree that wasn’t completed cannot be refinanced. However, if you have loans from an associate’s or bachelor’s degree you completed, you can refinance those loans.
If you’re dedicated to paying down your student loan debt according to your original repayment schedule or even faster, you may want to consider refinancing your student loan debt. As long as a lender is willing to approve your refinance loan, you should qualify to refinance your loans.
However, if you currently have private student loans, make sure you read the fine print to make sure you won’t be subject to any prepayment penalties or other fees related to paying off your student loans early.
If you can get a lower interest rate, you should refinance
In general, it may make sense to refinance student loan debt when you can obtain a lower interest rate, switch from a variable interest rate loan to a fixed interest rate loan, or if you need to restructure your loan payments.
If you have federal student loans, make sure you understand any repayment options you may lose access to by refinancing to a private student loan.
But you might pay more interest over time
Keep in mind, if you refinance to a longer repayment period than you have remaining on your student loan debt, you still may pay more in interest even if you secure a lower interest rate.
Also, your minimum payments will likely increase if you shorten the repayment period but your total interest paid could decrease even with a higher interest rate. Run the numbers to see which option is best for you.
Best places to refinance
If you’ve decided to investigate refinancing your student loans, here’s what you need to know.
First, you have many options to refinance your loans. Make sure to compare your options to find the best refinancing option for you. Different lenders offer different repayment periods, interest rates and other terms so it can pay off to shop around.
When it comes to lenders that refinance student loans, we like SoFi and Earnest. Here’s a bit of information about each of them.
SoFi allows you to get pre-qualified to refinance your student loans in just two minutes. They offer low fixed interest rate and variable interest rate options. You can even get a 0.25 percent discounted rate for signing up for AutoPay.
SoFi student loan refinancing comes with no application or origination fees and no pre-payment penalties, either. You do need a minimum of a 650 credit score to qualify for refinancing.
Earnest is another option to refinance your student loans. They also offers low variable and fixed interest rate loan options. They also offer the same 0.25 percent interest rate discount for using autopay.
- Fixed Rate – 3.74% - 8.49% (includes 0.25% autopay discount)
- Variable Rate – 2.49% - 7.99% (includes 0.25% autopay discount)
Earnest allows you to check the interest rate you qualify for in just two minutes!Earnest SLR Disclosure - Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.74% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.14% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
At the end of the day, you need to do what’s best for your finances. If you can pay less interest by refinancing your student loans, seriously consider refinancing to save. But, if you need to pay off a loan for a degree you didn’t finish, you may have to go a more traditional route.