Top 10 Ways to Pay Off Student Loans FasterJuly 20, 2017
Once you’ve graduated, found a great job, and started to pay off student loans, you might begin to wonder if there are ways to pay down your loans faster and perhaps save some money on interest payments. Or you might start thinking about this while you’re still in college. Here are several options to explore if you want to pay off student loans more quickly.
- Don’t take loans you don’t need. Loans could be a necessary part of the collegiate landscape, but you do have some choices to make when it comes to the amount of loans you take. Some students attend less expensive colleges and work part-time jobs to avoid taking loans, while others skip work entirely and use student loans to pay for everything from tuition and books to living expenses. If you want to reduce the amount of time you spend paying loans after graduation, one way to accomplish your goal is to limit the loans you take during your time in college.
- Read and understand all terms. Here’s an excellent lesson for adulthood: never sign anything you haven’t read. Don’t agree to anything until you’ve take the time to read and understand what you’re getting into, and if you don’t understand it, ask parents, lenders, or college counselors to explain the terms.
Is a loan fixed or variable? When does interest begin to accrue? What are the terms for repayment (interest rate, monthly payments, length of loan, etc.)? Knowing the fine points of your loans can help you later on when you’re trying to figure out ways to pay them off faster and potentially reduce overall costs.
- Set a budget. You’ve got a good job, you’re earning decent money, and you have disposable income, thanks to your college education. This doesn’t give you carte blanche to spend like it’s going out of style.
You did the responsible thing and earned a college degree. Continuing to make wise financial decisions will help you to pay off student loans faster. Start by setting a budget and living frugally while you still owe money. With a plan to repay loans and an appropriate budget in place, you have the best chance to whittle down your loan balance as quickly as possible.
- Start paying as soon as possible. If you’re lucky enough to enjoy some kind of grace period before loans begin to accrue interest, as with Subsidized Stafford Loans or Perkins Loans, for example, take advantage by paying as much as you can. Even if your loans are unsubsidized and accruing interest without actually having payments due, anything you’re able to pay back while you’re in school or during your grace period will result in less interest building up over time.
- Pay more than the minimum. The minimum payment is merely a suggestion, insomuch as you can always pay more toward the principal (although not less). What happens when you pay more than the minimum required monthly payment? You not only pay down your loan more quickly, but the faster you pay the principal, the less overall interest you accrue, lowering your total cost.
- Avoid additional debt. The Credit Card Accountability Responsibility and Disclosure Act of 2009 established restrictions on how credit card companies could market to minors and students, ostensibly to stop young and naïve individuals from being lured by seductive marketing and ending up with potentially damaging long-term credit card debt. This won’t protect you once you graduate and credit card offers start rolling in.
It’s all too easy to go wild with credit cards, never fully realizing that every transaction is like taking a loan. Credit cards are not cash-in-hand – they’re debt, plain and simple. Don’t make the mistake of digging yourself into a hole you can’t get out of.
When you handle your credit cards responsibly and use them sparingly, you can continue to build credit while paying off your student loans, as well as pay down loans faster with the money you’re not paying to credit card companies in interest.
- Take applicable deductions. Currently, the IRS offers students and graduates paying student loans the opportunity to take advantage of the American Opportunity Tax Credit (AOTC), which was made permanent in 2015 under the Protecting Americans Against Tax Hikes (PATH) Act. Depending on your circumstances, you could receive a tax credit of up to $2,500. For more information and to find out if you qualify, you can locate your local taxpayer assistance center through the IRS website here.
- Look into loan forgiveness. Loan forgiveness is a complex process, but there are a number of ways in which you could become eligible to receive forgiveness, discharge, or cancellation of student loans, as spelled out by the Office of Federal Student Aid. Generally speaking, you have to meet criteria related to:
- Loan type
- Repayment plan
- Payment schedule
- Employment type (such as teaching or public service jobs)
Forgiveness, discharge, or cancellation of student loans could also be related to:
- School closure
- False certification of student eligibility
- Unauthorized payment discharge
- Identity theft
- Borrower defense to repayment
- Total and permanent disability
Your ability to take advantage of opportunities for student loan forgiveness is entirely dependent on your circumstances, and you may need help navigating these tricky waters. Borrowers expecting their loans to be forgiven often make lower payments early on, which could result in even larger interest payments if they later find that they are ineligible for the program. It’s a good idea to speak with your lender, your school, your employer, or a representative of the Office of Federal Student aid to find out if you qualify and what steps you should take to seek loan forgiveness.
- Look for jobs that offer education reimbursement. Some employers offer opportunities for education reimbursement as part of a benefits package. You should always ask if this is offered before selecting a job and find out exactly what the terms are and what criteria must be met in order to take advantage of such offers. Even if your previous student loans are not covered, you may be able to find jobs that offer reimbursement for future graduate school expenses.
- Refinance. Reducing your student loan debt is a great way to help you pay loans off faster, and refinancing could allow you to consolidate student loans, lock in low, fixed rates, reduce monthly minimum payments and/or the term (length) of your loan, and pay less overall. When you originally took out your student loans, you were likely given a standard interest rate assigned to all student borrowers regardless of their financial situation. However, qualifying for more favorable rates and terms through refinancing may depend on several criteria, including your income, credit score, loan amounts, and so on. Be sure to research the pros and cons of refinancing with a private lender, but if you have a reliable income and solid credit history, you might discover that you’re eligible for terms that reward you for your responsible financial habits. You might as well find out if refinancing your student loans could help free up additional money that you could apply to other areas in your budget!