Graduating college and heading into the “real world” is a huge transition for young adults. It can often be scary and stressful as well. At this point in your life, you’re likely expected to find a job and provide for yourself.
Student debt can contribute to the stress of graduating college too. Recent2018 statistics state that 7 out of 10 graduates have some amount of student loan debt. The average graduate has around $30,000 in debt to pay off.
Most graduates look to pay off their loans as fast as possible. If this is the case for you, we’re here to help. While paying off your loans can seem daunting, there are many tricks and methods to repay loans. The fact of the matter is that many people just don’t know about them. This guide will provide you with the best strategies to pay off your student loans quickly, so you can rid yourself of that financial burden as quickly as possible.
1) Refinance Your Student Loans
If you know anything about refinancing a car or a home, the same principles can be applied to refinancing your student loans. You will turn old loans in for new ones with a lower interest rate. At the moment, only private lenders offer loan refinancing, but you can refinance and consolidate federal and private loans.
Refinancing is reliant on your and your cosigner’s credit. The better both of your credit scores are, the better your eligibility for refinancing to a lower interest rate. And when your loans have a lower interest rate, you will be able to pay off your principal balance faster.
2) Pay Off High Interest Loans First
When you’re paying off multiple student loans, your best bet is to pay off the loans with the highest interest rates first. This is because these loans will have the most amount of money capitalizing. Most loans have minimum monthly payments, however, so you can’t just hold off on paying a low interest loan. But you can put any extra money towards the loan with the highest interest.
3) Pay More than the Minimum
One simple way to save money in paying off student loans is paying more than the minimum payment you owe. If you are financially able to do this, you will reduce your loan’s principal, which results in less interest to pay in the long run. This is because interest is calculated based on how much of your loan balance is left. So the more you are able to pay, the less your balance will be, and the less interest you will have to pay.
If you earn any additional money throughout the year, it’s smart to take it and apply it to your loans. For example, end-of-the-year work bonuses or money from side jobs can be put toward your loan. This way, you’ll pay your loan off faster and pay less in interest.
4) Make Payments Every 2 Weeks
This simple strategy is essentially guaranteed to quicken your student loan repayment. All it requires is dividing your original monthly payment into two, and then paying this amount twice in a month, rather than the original payment once a month.
You may be unsure of how this helps, but here’s how: There are 52 weeks in a year, so if you make biweekly payments, you will make 26 payments in a year. This adds up to 13 monthly payments. So by simply paying twice in a month, you will have made an extra monthly payment by the end of the year. While it may seem small, this can lead to big savings when it comes to saving on interest.
5) Create a Budget & Track Spending
Following a budget is debatably one of the most important aspects with anything regarding money. Keeping track of your spending and your finances is crucial, particularly for people looking to pay off student loans quickly. Having a budget and tracking your spending allows you to have an insight on where your money goes, and how much money you need to put towards things like entertainment, costs of living, and student debt. In addition, having a budget can help you decide which student loan repayment plans may be the best fit for you.
The first step to creating a budget is taking out costs of necessary expenses, like housing, food, and medical costs. After this, your priority should be paying off your debt. And once you account for making those payments, you can budget out the rest of your money for entertainment, luxuries and savings. Ideally, you would spend less money on luxuries to be able to put more toward your student loan payments.
6) Take Advantage of Interest Rate Reductions
This is another simple method to save money on your loans. Interest rate reductions may be something you can take advantage of when repaying your loans. A common reduction is by signing up for auto-pay on your loans. If you do this, your servicer will automatically take out your loan payment from your bank account, and in-turn, you will be given an interest rate reduction usually around 0.25%. Reductions can vary from lender to lender, so be sure to check out your own lender’s website to see if this could be a tool for you.
7) Avoid Extending Your Repayment Term
Rather than this being a strategy to take, it is more just something to avoid. Many federal student loan repayment programs allow you to extend your repayment terms. These extensions can be in the form of income-driven repayment plans, graduated repayment plans, and more.
And in general, while these plans can be helpful in times of financial struggles, it is best to avoid them if possible. This is because simply by extending your repayment, you will not pay down your loans as quickly and will accrue more interest and end up paying much more over time. So if possible, try to avoid these repayment plans.
8) Use Cash Windfalls for Extra Payments
A cash windfall is when you receive a large sum of money at one time. Cash windfalls are typically unexpected too. They can include anything from an inheritance, money from a legal settlement, a work bonus, or more.
If you find yourself with a cash windfall, it’s wise to put even just some of this towards your student loan debt. Try to avoid the temptation to spend it on entertainment or luxury items all at once. While this may be great in the short-term, you’ll be happy in the long-term once you see your student loan balance decrease significantly.
9) Work for an Employer that Offer Student Loan Repayment Assistance
The popularity of student loan repayment assistance from employers has been growing. And the benefits are enticing. Essentially, an employer will pay a certain amount of money towards their employee’s student debt each month. While the amount may vary, it typically tends to be around $100-$300 that employers offer each month.
Working for a company that offers this repayment assistance not only helps you pay down your debt, but also helps you pay it down much faster. Furthermore, if you can still afford to make your own minimum monthly payments, do so, and use the assistance from your employer to help pay down even more of the balance.
With utilizing this benefit and continuing to make your own payments, you can cut down the time it takes to repay your loan significantly. In addition, it can save you up to thousands in interest over the life of your loans.
10) Take Advantage of Tax Deductions
The IRS allows you to deduct up to $2,500 of student loan interest from your taxes. What does this mean exactly? It means that if you attended an eligible higher education institution, or most colleges and universities across the U.S., you can deduct up to $2,500 from your Adjusted Gross Income. In the end, this reduces the amount of taxes you have to pay. However, those who make more than $80,000 are not eligible for this, and those making over $65,000 but less than $80,000 will only be able to deduct a portion of the $2,500.
11) Join the Military
Entering the military with student loan debt could allow you to pay it off by using the GI Bill or another type of relief. Military student loan forgiveness is also a possibility. With this solution, you will need to commit to a certain amount of time in the active military. In turn, they will help you pay down your debt.
It’s important to do your research and look into the programs before signing up. Each program has a varying amount of assistance, so be sure to read up on each of them before making a decision.
12) Utilize Student Loan Forgiveness
One advantage of federal student loans over private student loans is that you are eligible for loan forgiveness. This means, essentially, that you are excused from making any more student loan payments and you are not responsible for your loans once you have been granted loan forgiveness.
With student loan forgiveness comes loads of eligibility requirements. Very few individuals can have loans paid off by the government. And before we go into more detail on the eligibility, you should be aware that most people do not qualify for these programs, and you will still have to make significant payments before receiving loan forgiveness.
Teacher Loan Forgiveness
Full-time teachers working at low-income schools for five years are eligible to have up to $17,500 of their loan balance forgiven. Both direct subsidized and unsubsidized loans are eligible, but PLUS loans and Federal Perkins Loans are not. But if you have Perkins loans, these may be discharged through the Perkins Loans Cancellation program.
Public Service Loan Forgiveness (PSLF)
The PSLF program forgives your loans only after you have made 120 qualifying monthly payments while working at least 30 hours per week. Only some employers are eligible. These include nonprofit organizations, government organizations, and the military. Any direct loans are eligible for forgiveness but FFEL and Federal Perkins Loans are not.
Other reasons for forgiveness
There are some other occurrences in which student loans may be forgiven. These circumstances include borrower disability or death, bankruptcy, false loan certification, or identity theft. These options are rare, however, and should not be a factor you rely on in paying off your loans.
Private Student Loans
Many people with private student loans struggle to pay off their student loan debt. These loans are tricky because the interests rates are constantly rising. Often they are designed to take longer to pay off. Although there are no forgiveness programs for private student loans, there are some companies that fight for you to lower your private student loan to a more reasonable balance. Depending on your eligibility, sometimes they are able to even eliminate it.
Most Effective Option
Paying off your student loans doesn’t have to be daunting. These strategies can help you pay off your student loan debt once and for all. The most effective method is to look into forgiveness programs. You may be able to reduce your overall balance or eliminate it completely. Even if you have private student loans, there are still programs that can help you. It is worth the try to see if you qualify. To learn more about these programs check out our friends at aleevly.com. They have a variety of different programs that can help you pay off your student loan debt.