7 Ways to Pay Off Your Student Loans Faster
Stressed about student loans? We don’t blame you. The average 2016 college graduate left school with a colossal $37,172 in student loan debt, student loan expert Mark Kantrowitz told CBS Money Watch. Even if your tab isn’t that high, the anxiety and fear that come along with student loan debt can be debilitating. Many people report feelings of hopelessness and defeat as they put off major life decisions and work multiple jobs trying to pay down high balances.
It’s time to stand up to student loan debt. In this post, we’re showing you the top strategies to pay off student loans faster and reclaim your life.
1. Make a plan, keep your goal in mind
Don’t free-fall through this; know what your loan payments look like, the date you’re scheduled to pay them off and how much interest you’d wind up paying under that schedule. Then sit down and create a budget, looking for areas where you can cut on spending and step up on loan payments. You can’t do any of the below tips if you aren’t armed with information about your financial landscape. As you incorporate these tips, document them (yes, on paper) in a 3-5 year plan. Keep your eye on your end goal: early payoff and greater financial freedom.
2. Start making payments before you graduate
Most federal loans don’t require you to make payments until six months after graduation, but just because you don’t have to start making payments doesn’t mean you shouldn’t. Get a part-time job while you’re still in school and put 25 percent of your take-home pay down on your loan debt. You could save thousands in interest over the life of the loan. Just make sure the money is going to the principal, not the interest — call your lender to be sure. (Note: Private lenders might hit you with a penalty for paying early, so check first.)
3. Pay more than the minimum monthly payment
This one is straightforward: Add what you can afford to your monthly payment, and you’ll pay off your loan faster. Again, contact the lender to make sure the extra amount is going to the principal, not the interest. One better: Have the amount with the extra tacked on automatically drafted from your account each month.
4. Consolidate and refinance
Consolidating your loans into one loan with a lower interest rate can save you thousands, too. The idea here is to take those interest savings, put the money on the principal and pay your loans off faster. This post from NerdWallet lists the 11 best companies to refinance student loans for 2017.
5. Put your tax refund down on the balance
Commit to putting part or all of your income tax refund toward your student loan debt — every year until it’s paid off. It’ll be tempting to spend the money on fun things you can’t afford to buy throughout the year, but try to avoid this trap (see number 1).
6. Take advantage of tax credits/deductions
You might be eligible for the student loan interest deduction as well as a couple different tax credits. This post from USA Today explains how to take advantage of the four biggest credits and deductions for college students.
7. Get forgiveness
There are four programs that either cancel or reduce your federal student loans:
- Public service loan forgiveness. After 10 years working full time for the government or in the nonprofit sector, your remaining federal loan balance may be forgiven. This program is great for police officers, firefighters, nurses, teachers, members of the military, etc.
- Teacher loan forgiveness. Teachers who’ve worked full time for five consecutive years in a low-income public school can have up to $17,500 in direct or Stafford loans forgiven.
- Perkins loan cancellation. People who work for five years in such public service jobs as police officers, firefighters, teachers, nurses and public defenders can have their federal Perkins loans canceled.
- Income-driven repayment. The federal government offers four income-driven repayment plans, all of which forgive your student loan balance after 20 or 25 years.
To see if you qualify for any of these loan forgiveness programs, visit the Federal Student Aid site.