The student loan numbers are getting higher every year. In the US alone, the total value of student loan debt reached $1.56 trillion in the year 2020. Overall, the value has increased globally in the last ten years.
It takes about 16 years on average to repay that. But it is possible to do it faster and more effectively. If you want to pay off your student debt quicker, this guide will help you out.
As a student, you might think that you have enough trouble lying on your shoulders right now. There is a course load, lots of assignments, social life, and probably a part-time job. It can be really stressful and worrying about the loan might add even more weight to that. But the earlier you start, the faster you can be free of it.
Sometimes something as simple as taking an extra shift or a side gig can be a great help. Maybe you’ll have to make some sacrifices, like missing a party or delegating an essay to professionals. But if you’ll earn more while the paper is taken care of, it is a reasonable choice. For example, an academic college essay writing service like EssayPro offers high-quality help with budget-friendly prices. Sometimes all one needs is a bit of extra free time to recharge, work, or strategize.
The next step is to be informed about all the crucial data on your loan debt.
Figure Out Repayment Plan and End Date
To have a strategy on paying it off, one needs all the data on their hands. The first thing to do is to figure out what kind of loan you have and what type of repayment plan is available.
If you have a federal loan, it is as easy as going to the National Student Loan System. There are usually 4 types of repayment plans offered:
- Standard is usually assigned to everyone automatically until further notice. It takes 10 years to complete. The monthly payments are the same through this period;
- The graduated plan also lasts for 10 years, but the payments differ. One starts paying less and every two years the monthly bill grows;
- Extended allows you to pay less monthly but might take about 20 years to complete.
- Income-driven repayment means that you pay what you can afford according to your salary. It lasts for about 20-25 years and requires certifying income every year.
The private loans might have different options, so contact the lender and ask all about it.
After that, figure out the end date and the total amount you’ll have to pay. It means adding interest to the principal amount. Now you have a deadline and understanding what it takes to complete.
Try to Pay More
In reality, there is only one way to pay it off faster – pay more than a monthly fee.
Every time you make an extra payment, it reduces the principal amount (the debt itself without interest), which means less interest and less money to spend as a result.
Just make sure to contact the servicer and explain that extra money should go to your current account (principal amount). Otherwise, it can be applied to the next monthly payment. And this is not going to reduce the total sum.
Yes, paying more sounds easy in theory, but it is not always that simple for students and recent graduates. Money has to come from somewhere. Do not worry; there are several ways to handle that.
Make Biweekly Payments
Instead of doing one monthly transaction, you can separate it into two biweekly ones. So it won’t be a huge sum at once, but rather two reasonable ones. And even if you add $20 extra to each of them, it will be $40 a month, which is still helpful. Paying an extra $100 monthly can cut a couple of years from the term.
Lower Interest Rate
If you’re a parent and you’ve taken out a parent refinance to help your child, refinancing your loan can cut interest rates significantly. However, if you’re a student dealing with the loan on your own, refinancing can be a riskier decision. It only makes sense if you have a steady job, a good credit score, and complete confidence in your ability to pay it off.
The less risky option is to ask the lender about a possible discount on an interest rate and how you can apply.
For example, the majority of lenders are ready to reduce the interest by 0.25%-0.5% if you make the payments automatic.
Private lenders can also give discounts for those who did a specific amount of on-time transactions or took another loan with them. Ask about your options and consider them.
Consider Loan Forgiveness
This option might not be for everyone, but it is good to know about it. Several loan forgiveness programs help students and recent graduates. But the requirements are pretty tough. Many of them demand one to work a specific job – as a teacher, public servant, part of a nonprofit organization, or government employee.
If you are going to work in one of these areas, learn more about these programs.
Apply to Tax Deductions
Another helper is the opportunity to deduct loan interest based on the taxes on the interest paid that year. According to federal law, one can have up to $2,500 deducted, which is a decent amount.
And this is available for private lenders, too. So if you are required to pay tax on loan interest and you are not married (filing separately), you can claim this deduction.
Set a Separate Fund
It can be tricky to save up for repayment for everyone. There are a lot of things one might need or want to spend their income on. A great option to avoid any risks is to set a separate account for this specific purpose.
Also, set automatic transfers so that you do not waste money on other things. Look into high-yield saving account options to maximize the returns.
Ask Employer About Possible Benefits
Some employers pay off part of a student loan debt as a benefit. Ask whether they have such a program and if the answer is yes, enroll in it.
Have a Budget Strategy
The truth is, you have to be very conscious about your budget. Having a distinct strategy goes a long way. There are two main goals – decrease disbursements and increase income.
Save up by:
- Spending less on rent with the longer contract;
- Canceling monthly subscriptions you do not use or can live without;
- Reduce times you eat out or order delivery;
- Use student discounts to the max;
- Separate wants from needs;
- Choose a cheaper mobile phone subscription, etc.
Earn more by:
- Applying for a raise;
- Taking an extra job or side hustle;
- Selling things you no longer use online;
- Using any additional cash (annual benefit, tax repayment, raise, inheritance, etc) to paying the principal amount.
It is a long and challenging path, yet it is still completely possible to pay off student loan debt in time or even faster. It takes a decent amount of research and strict budget planning but also offers many benefits. Consider what you can sacrifice and what additional responsibilities you can realistically take.