Tips For Paying Back Your Student Loans Faster
Published: Monday, May 21, 2018 by Priscilla Ameneyro
You’ve finally graduated and landed your dream job. Six months have passed and everything’s going great until you remember, it’s time to start paying back your student loans! Don’t let that thought fill you with dread. I’m here to give you some tips for paying off your balance in a flash. Short of winning the lotto, it’s going to take some extra effort on your part, but with the right mix of know how and dedication, you’ll be on your way to living student loan debt free.
This is the second post in the student finance series (click here for the first post on tax returns). Although I like to think I’m pretty financially savvy, I’m by no means a qualified financial advisor and you should seek professional expertise for your individual situation.
The first thing you need to do is make sure you understand your loans. Many students end up with different loans with varying interest rates and repayment terms. Get familiar with your loan(s) so you know where you stand and can start strategizing about how you’re going to pay them off. There are several options for repaying your loans. If you can afford it, the standard/level repayment plan will have your loan paid off the quickest.
The Center for Microeconomic Data reported national student loan debt rose to $1.38 trillion at the end of last year. Any amount you can put towards your loans while you are still studying will help reduce the amount you owe when you graduate and save you money in interest. Even if it’s only a small amount every other week, it could add up to hundreds in saved interest payments over the long term. A lot of students don’t realize that they can make early payments (double check there isn’t a penalty if you have a private loan). Make sure these payments are going towards your principal; paying your principal down faster reduces the amount of interest you’ll have to pay over time. Another tactic is to make interest only payments while you are still in school to avoid capitalization, this is when unpaid interest is added to your loan principal.
Increase Your Income
It’s a no brainer that having more money means you can pay more of your student loan back. Many of these ideas apply to a mortgage or credit cards too, not just student loan debt. Size up your options for making some extra cash, like a bona fide side hustle – see my post on flexible work options for inspiration. You can also increase your income by lowering your monthly expenses. What can you live without? Cable TV? Eating out? Consider moving back in with family or getting a roommate for a while. Calculate how much extra you’ll have each month as a result and pay it towards your student loan right away.
It sounds too good to be true, but there are loan forgiveness programs for those that work in public service or at a non-profit after graduating, including public and school librarians. You have to make “120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer” before the rest of your debt is wiped out. While you could feasibly pay off your loan faster than this with some of the tips outlined in this blog post, it’s a good option to be aware of especially if you are thinking about a career in one of these sectors. Check back for the latest information as the future of these programs is uncertain.
A few other tactics to help you chop down that balance are:
- Pay more than the minimum payment each month (and make sure it goes towards the principal).
- Make lump sum payments when possible, for example with a tax refund or bonus.
- Set up automatic payments to get a 0.25% interest rate reduction (and never miss a payment).
- Don’t forget to claim your student loan interest deduction on your tax return.
Check out the Federal Student Aid website for more information and start thinking about how you’re going to pay back your student loans sooner rather than later. With a solid plan to pay down your debt as fast as you can, you’ll lower the overall cost of your education and free up your finances to reach other goals like buying a home.