There are many pieces of advice regarding student loans, so it may be difficult to know which tips to follow. Although everyone’s individual situation may be different, there are certain methods that have been proven to be effective in helping people pay off their debt.
To gather the best tips and tricks, we reached out to experts for their student loan advice. From making in-school payments to refinancing for lower interest rates, here’s what the pros have to say about paying off your student loans:
- Make extra payments the right way
You will never be charged a fee for prepaying your student loans or for paying more than the minimum. However, there is one thing to keep in mind with regards to prepaying: Student loan servicers, who collect your bill, may apply the extra amount to the next month’s payment.
Although making extra payments towards your student loans will advance your due date, it will not help you pay off the loans any faster. To ensure that your extra payments are being applied correctly, you should contact your loan servicer and instruct them to apply the overpayments to your current balance and to keep next month’s due date as planned.
There are two ways to make your student loan payments: you can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Making additional payments or a lump-sum payment can save you a lot of money.
If you owe $10,000 with a 4.5% interest rate, you can pay off your debt more than five years ahead of schedule by paying an extra $100 every month.
- Refinance if you have good credit and a steady job
Refinancing your student loans can help you pay them off faster without making extra payments.
Refinancing your student loans means taking out a new loan to pay off your old ones. You may be able to get a lower interest rate, which can save you money over time. You may also want to choose a shorter loan term so that you can pay off your debt more quickly.
If you choose a shorter term for your loan, your monthly payments may be higher. However, this will help you to pay off the debt more quickly and save money on interest.
Refinancing your student loan debt at a lower interest rate could help you pay it off more quickly and save you money on interest.
If your credit score is in the high 600s and you have a solid income with a debt-to-income ratio below 50%, you may be a good candidate for refinancing.
NOTE: However, you should not refinance federal student loans if you want or need programs like income-driven repayment or Public Service Loan Forgiveness.
- Track down your loan servicers
You don’t want to be caught unaware when repayment starts, so make sure you go over the details of your loans and know exactly who your loan servicers are.
According to Attorney Adam Minsky of Boston Student Loan Lawyer, the best way to deal with student loans is to figure out what loans you have and who is servicing them. He advises that you make sure all of your loan servicers have your updated contact information.
If you have federal student loans, you can find out which of the nine federal student loan servicers has your account by signing into your Federal Student Aid account.
If you’re not sure who your private student loan lender is, you can check your credit report for their name and information. If you have private student loans, you should call your lender to get detailed information about your servicer. You can find AnnualCreditReport.com online to get your credit report.
Keep in touch with your servicer by sharing your contact information if you move or switch email addresses.
- Consider paying off the interest while you’re in school
If you can make small payments or just pay the interest while you’re still in school, you can save money on your loans.
Brian Meiggs, who founded the personal finance site My Millennial Guide, managed to pay his student loans back earlier than planned. This was partially because he made payments while he was still studying. Meiggs therefore recommends that anyone with student loans should start making repayments as soon as possible.
Meiggs says that if you do not have a subsidized federal student loan, your student loan will accumulate interest while you are in school.
He states that if no payments are made during college, then you will already owe thousands more dollars than you took out when you graduate for both unsubsidized federal student loans and private student loans.
You can reduce the cost of your loan by paying off the interest while you are in school. Additionally, you can minimize the effects of “interest capitalization” by ensuring that your loan balance does not grow because of unpaid interest.
According to Meiggs, by making small payments on your student loans each month, or even when you can, you can help reduce the amount of debt you will have to pay off in the future.Making small sacrifices now can help you out a great deal in the long run.
- Avoid borrowing more than you need
If you are taking out student loans, be aware of how much you are borrowing. Many of the 45 million Americans who have student loans (totaling $1.71 trillion) wish they had borrowed less.
Student loans can help finance college, but it’s important to only take out what you need to avoid being saddled with too much debt. This is according to Robert Farrington, the money expert behind The College Investor.
You don’t have to take the full amount of student loans that you’re offered. You can just take what you need to cover the cost of attendance. You can also help pay for school by working part-time or doing side hustles. Borrowing less will help you get out of debt faster.
- Enroll in autopay
If you’re not interested in refinancing your loans, signing up for autopay is another way to lower your student loan’s interest rate.
If you allow your federal student loan servicers to automatically deduct payments from your bank account, you will receive a quarter-point interest rate discount. Many private lenders also offer an auto-pay deduction.
The interest rate on a $10,000 loan dropping from 4.5% to 4.25% would save you a total of $144 over the course of a 10-year repayment plan. While this may not seem like much, every little bit can help when it comes to repaying student loans.
- Make biweekly payments
You can trick yourself into paying more on your debt by making half payments every two weeks instead of one full payment each month.
You will make one extra payment each year if you switch to biweekly payments, which will shorten your repayment schedule and save you money on interest costs. Use a biweekly student loan payment calculator to see how much time and money you can save.
- Pay off capitalized interest
Unless your loans are interest-free while you’re in school, you’ll accrue interest during your grace period, deferment, and forbearance periods. That interest gets added to your loan balance (capitalizes), which means you’ll owe interest on a larger amount when repayment begins.
One way to avoid having interest added to your loan balance is to make monthly interest payments as it accrues. Another way to keep your loan balance from getting too high is to make a lump-sum interest payment before your grace period or postponement ends. Paying off your loan balance more quickly won’t happen right away, but you’ll end up with a smaller balance overall.
- Understand your options for repayment
Research your repayment options thoroughly to ensure that you understand all of the available options and their implications.
Loans from the federal government come with a variety of repayment options, including the standard 10-year plan, income-driven plans, extended repayment, and others. This flexibility can be really helpful if your income is limited and you need to lower monthly payments.
According to Liz Stapleton, who runs the finance blog Less Debt More Wine, you don’t have to stick to the same repayment plan for your student loans throughout the entire life of the loan. You can change your repayment plan up to once a year, depending on your changing financial situation.
Some lenders offer deferment or forbearance for private student loans if the borrower experiences financial hardship or goes back to school. If you’re looking to adjust monthly payments, contact your lender to see what options are available.
- Stick to the standard repayment plan
The government typically offers a 10-year repayment plan for federal student loans, unless the borrower requests a different timeline. If the borrower is unable to make large additional payments, staying on the standard repayment plan will be the quickest way to pay off the loan.
Federal loans offer repayment plans that are based on your income, which can extend the payoff timeline to 20 or 25 years. You can also consolidate student loans, which stretches repayment to a maximum of 30 years, depending on your balance.
If you are able to stick with the standard plan and do not need the additional options, it will mean that you will become debt-free quicker.
- Keep living like a student
Once you graduate, you may be tempted to start spending more money. You may need professional clothing for interviews and furniture for your new place. However, it is best to avoid “lifestyle creep” during the early years after graduation.
Whitney Hansen, financial coach, advises continuing to live like a college student even after getting a great job post-graduation. The extra income should be put towards debt. This will be appreciated by your future self.
If your income goes up, resist the urge to spend more. You can get rid of your debt faster and enjoy the extra money if you stick to a budget. Otherwise, you’ll feel like you’re always debt.
- Pursue jobs that could lead to loan forgiveness
There are a few things to keep in mind when you start looking for a job, one of which is to research whether or not there are any loan forgiveness plans available in your field. Elizabeth Colegrove, who runs the real-estate investment site Reluctant Landlord, says it’s important to review the available student-loan forgiveness options when considering positions.
The Public Service Loan Forgiveness program can cancel your college debt after 10 years of working in a nonprofit, government agency, or other qualifying workplace. Other professions like teacher, lawyer, and doctor can also sometimes qualify for loan forgiveness or repayment assistance.
You can also look for jobs that include loan payment plans as part of their benefits package.
Colegrove says that a lower-paying job might actually be higher when taking into account the benefits package.
- Use ‘found’ money
If you end up with extra money from a raise, student loan refinance bonus, or another financial windfall, put at least some of it towards your loans. You could use this breakdown: 50% of the extra income can go towards debt, 30% to savings and 20% to fun, discretionary spending.
If your company offers an employer student loan repayment program, you should enroll in it. This benefit can help you pay off your student loans.
There are many ways to pay off student loans fast, one of which is to start a side hustle. This can involve selling items you don’t need, like clothes or unused gift cards, or renting out your spare room, parking space, or car. If you have any special skills, you could also use them to freelance or consult on the side.
One way to save money towards your loans is to set up rules for yourself, like putting any $5 or $10 bills you receive towards your loans. There are also money-saving apps, like Digit and Qapital, that can help you set savings goals and rules.
- Don’t ignore financial problems
The most important piece of student loan debt advice is to not default on your student loans if you can help it. If you’re struggling to make payments, reach out to your loan servicer as soon as possible.
You could temporarily stop making payments on your loans so they don’t become delinquent or end up in default. Having debt in default can make a bad situation worse by ruining your credit score, and for federal loans, it could even lead to wage garnishment.
You shouldn’t ignore your student loan debt because it won’t go away on its own. Be proactive about dealing with it by following this advice from experts. This might take some time, but it will help you pay off your debt faster.
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