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Congrats to the Class of 2016! May your lives after graduation be a reflection of everything you’ve worked so hard for – a successful career, stable finances, and much more. And if you’re one of the 40 million people in the U.S. with student loans, may your student loan repayment strategy help you eliminate that debt efficiently, so you can focus on your life’s journey.

Make no mistake – student loan repayment does require a strategy. Right now, it might seem as simple as picking a repayment plan and writing the first check, but the decisions you make today and during the course of the loan can affect how much interest you pay in the long run. A smart repayment strategy ensures that you don’t spend a penny more than is necessary.

Student loans may be a fact of post-grad life, but you can take four steps to put your repayment strategy on the right track:

1. Know Exactly What You Owe

Chances are you haven’t looked at your loan statements since you signed on the dotted line. So spend time getting reacquainted. Find your federal loans on the National Student Loan Data System (NSLDS) website .

If you’ve got private loans, gather your statements or check with your school’s financial aid administrator. Many private loans are also listed on the Clearinghouse Meteor Network . If necessary, pull your credit report ; all of your loans will be listed there.

Once you’ve tracked everything down, make a list of your loans and their important details—the type (e.g., Direct, PLUS, private), the balances, and the interest rate you’re charged for each. This information is key to intelligent planning.

2. Understand the Grace Period

Some student loans offer a grace period of several months (six, usually) after graduation before you’re required to start making payments. This can come in handy if you haven’t yet found employment or you’re taking a break before entering the working world.

Just remember that the interest clock is usually ticking on most unsubsidized and private loans during this timeframe. Those loans begin to accrue interest the moment they’re disbursed, and will continue to do so throughout the repayment period.

At that point, the accrued interest is capitalized and added to a loan’s principal, which means that you end up paying interest on a larger loan balance. Translation: higher interest cost for you.

Bottom line? Use the grace period if you need it, but consider making at least interest-only payments during this timeframe in order to save money long-range.

3. Do the Math

Most lenders will offer you a choice of repayment plans, allowing flexibility around the length of the repayment term (e.g., 10 years vs. 20 years), which impacts your monthly payment amount and total interest cost. While it might be tempting to choose the option with the lowest monthly payments, the long-term repercussions can be costly.

For example, let’s say you have a $100,000 student loan at a fixed 6.8% interest rate. If you pay it off in 10 years, your monthly payments will be $1,150, and the total interest will be $38,096. If you extend the term to 20 years, your monthly payments will go down to $763 but your total interest will spike to $83,201. If you can afford the higher monthly payments, you can save more than $45,000 in interest with the 10-year plan.

Recommended: Explore our student loan help center for tips, resources, and guides to help you navigate your student loan debt.

However, the most important factor is the ability to pay your monthly student loan bill, because missing or making late payments can have a disastrous effect on your credit. If you need to choose a lower payment option initially, do so.

But when you’re able, switch to a more aggressive plan or keep the longer term but pay more than the minimum each month to accelerate loan repayment. The sooner you do, the less interest you’ll pay and the faster you’ll be done with your loans.

4. Consider Refinancing

One of the best ways to save money on interest is by lowering your interest rate, and the only way to do that is through student loan refinancing. Refinancing typically requires the borrower to have a solid income and a track record of capably handling debt.

So if you’ve landed a great job and have a history of managing loans and credit cards responsibly, lowering your interest rate may be a cost-saving option for you.

Using the above loan example, let’s see what happens if you refinance that loan at a lower rate. By refinancing a $100,000, 6.8%, 10-year term loan to 5%, your payments would go down to $1,060, and your total interest would be $27,278. In other words, refinancing would mean lower monthly payments and a total savings of almost $11,000.

But before refinancing federal student loans, remember that fed loans offer benefits like potential loan forgiveness and income-based repayment plans.

These programs don’t transfer to private lenders, so it’s important to know whether they apply to your situation before refinancing. If you don’t benefit from these programs, and saving money is your priority, refinancing federal loans can be a cost-saving option.

When ready, do the math on refinancing your own loans using our student loan calculator.

Keep Your Eyes on the Prize

Arguably the most important aspect of any student loan repayment strategy is to keep a positive, can-do attitude. When starting out, each monthly payment can feel like a drop in an ocean. But stick with it, increase your payments when possible, and soon you’ll build momentum and experience some satisfying results.

While there’s no one-size-fits-all approach to determining the very best strategy, if you take time to understand all of your repayment options, you can create a course of action that works best for your situation, saves you money over the long term, and works toward paying off loans as efficiently as possible. An effective plan will allow you to focus on what’s really important: life after graduation.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Thinking of buying a home this year? With interest rates, rents and housing prices all on the rise, this could be an opportune time to make it happen – and an interest-only mortgage loan might be the thing that makes it possible.

How Does it Work?

While not for everyone, an interest-only mortgage offers a host of advantages for some borrowers. As the name suggests, these loans allow you to pay only the accrued interest on the loan each month for a period ranging from 5 to 10 years.

Because you make lower monthly payments during this timeframe, you enjoy increased financial flexibility (meaning you can invest the difference or choose to pay principal in conjunction with a bonus or other cash influx).

After the interest-only period expires, the loan converts to a more standard structure where both principal and interest are paid on a monthly basis. At this point, you’ll see your mortgage payment go up – sometimes substantially.

Because of this, interest-only loans are typically better for borrowers who expect to be able to cover those higher payments in the future – for example, if you believe your income will increase before the interest-only period is up.

A Checkered Past

Interest-only mortgages have been around for decades, but for the most part they weren’t attractive to the masses. Typical borrowers were often affluent homeowners who viewed their homes as part of an investment portfolio: interest-only mortgages provided the opportunity to seek better returns with the capital that would otherwise have been used to make a higher mortgage payment.

Then came the housing bubble of 2004 – 2006, when lenders started approving interest-only loans for unqualified borrowers who wanted to keep mortgage payments low while trying to flip houses as quickly as possible.

After the bubble burst in 2008, the market for interest-only loans went dormant for several years – and these products were left with a less-than-favorable reputation.

The Opportunity Today

Between the current economic environment and the advent of new interest-only loan products, this type of loan is once again worth considering for some borrowers.

Again, the main stipulation is that you’re not biting off more than you can chew – meaning you expect to be able to handle the increase in payments once the interest-only period is up.

If you meet those criteria, here are a few advantages to consider:

1. Lower Upfront Monthly Payments

Because you only pay the interest that is accruing on the mortgage, initial monthly payments are substantially lower than if you were also paying the principal.

For example, on a $1 million, 30-year, 4% fixed mortgage, the initial monthly payment would be $4,774 – with about $1,440 of that going to principal. On an interest-only mortgage with the same criteria, the monthly payment would be $3,333.

2. Tax-Deductible Payments

Generally speaking, you can deduct 100 percent of your interest-only mortgage payments,as long as the total deduction is on debt less than $1 million.

On the other hand, mortgage payments that include payments on both principal and interest are only deductible for the amount of interest paid. In the example above, for each month’s payment of $4,774, only the interest portion ($3,333) would be deductible.

3. Rent vs. Own

As rents continue to skyrocket in metropolitan areas, many people would rather put that monthly check toward a home of their own. For example, the median monthly rent for a one-bedroom apartment in San Francisco is about $3,500.

With interest-only mortgage rates currently hovering around 4 percent, payments on a $1 million mortgage would be less than the cost of renting. Factor in the tax deduction benefit, and buying a home becomes even more attractive.

4. Seek Higher Returns

There are situations where paying down the balance of a mortgage may not be the most efficient use of capital, specifically when funds can be allocated to higher-yielding investments.

Much like the savvy borrowers in the early days of interest-only loans, you can take advantage of the flexibility afforded by lower mortgage payments to seek investments with higher returns. This advantage makes an interest-only mortgage a compelling choice for long-term wealth building.

The Takeaway

Forecasts for 2016 and beyond include rising interest rates, increasing housing prices and the continuing escalation of the cost to rent.

These factors make 2016 look like an opportune time to buy a home. If the structure of a traditional mortgage has prevented you from buying a home, an interest-only mortgage may provide a solution that helps make that happen in the near future.

Download the SoFi Guide to First Time Home Buying to get valuable tips on these topics and more. Our guide also demystifies modern mortgage myths around down payments, the pre-approval process, student loans, rising interest rates, and more.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages not available in all states. Products and terms may vary from those advertised on this site. See sofi.com/eligibility-criteria for details.

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