Student loans can cause a lot of stress and prevent you from saving for other goals. These five tips will help you pay your student loans off faster.
- Stick to a Standard Payment Plan
It may seem tempting to change repayment plans in order to receive a lower monthly installment, but it is best to stick with a Standard Repayment Plan. Extended repayment plans or income-driven repayments can increase your loan cost.
Streeter says, “By lowering our payment, we’re prolonging the term and adding interest.”
To make student loan payments easier, stick to a budget.
- Use unexpected windfalls to make lump sum payments
You may be surprised to find unexpected income over time. You can use these windfalls to reduce your loan payments faster, whether it’s a tax refund or a bonus from your job.
Let’s take, for example, $30,000 worth of student loans at a 5% rate with a 10-year repayment period and $318 monthly payments. You could pay off your student loan debts five months sooner if you got a $1,000 tax refund. You’d also save $635 on interest.
- Pay More than the Minimum
Betsy Mayotte (founder and president of The Institute of Student Loan Advisors) says that student loans are not easy to pay off. “The faster you pay the more interest you pay in the long-term and the quicker they are paid off, the more you pay.”
There are several ways to increase your payment:
Reduce your expenses: If you want to make higher payments, consider getting a roommate or downsizing.
Side hustles can help you increase your income and make extra payments. You could help with household chores, online tutoring, or walking dogs.
You can also use your spare money to pay your loans off faster. Mayotte says that there are apps that will round up your purchases. You can then use the extra money to pay your loans. These apps sync with your bank account or debit card and round up every transaction to the nearest dollar. The app will pay you a loan payment if the difference in change reaches a certain amount.
Talk to your loan servicer about how extra payments should be made.
Streeter states that default means payments will be applied to the principal and interest first. You can ask them to apply it to principal or to a loan with a higher interest rate instead.
- Enjoy Interest Rate Discounts
A quick way to speed up your student loan timeline is by using interest rate discounts offered by your loan servicer.
Some private lenders and federal loan servicers offer automatic payment discounts that reduce your rate by about 0.25%. You may also be eligible for loyalty discounts from lenders, which can further lower your rate. These discounts can help you save money and make it easier to pay off your debt quicker.
- Ask Your Employer for Help
Your employer may be a valuable resource for student loan repayments, even though you might not know it.
Mayotte says, “Taking advantage any employer repayment plans and matching plans is also an excellent strategy.”
According to the Society for Human Resource Management in 2020, approximately 8% of employers offered student loans repayment assistance. This number has increased steadily over the years. These programs will typically match student loan payments up until a maximum monthly or lifetime amount, helping you to pay off your loans faster. Talk to your human resources department to find out if your employer offers student loans repayment assistance.
Refinance Student Loans
Refinancing student loans is an option when you are looking for ways to pay down student loans more quickly. Refinancing allows you to obtain a lower interest rate, which will allow you to pay less interest and pay your debt off sooner.
But, refinancing student loans is not for everyone.
Mayotte says that you cannot refinance loans within the federal program. You will need to find a private lender instead. Refinance federal loans can make them private, and you will lose income-driven repayment plans. Refinancing is best for private high-interest loans.
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Intervention by the Government
There are several options for borrowers who want to get government intervention on their loans:
Public Service Loan Forgiveness: Federal Direct loan borrowers who work for non-profits or the government may enroll in an income-driven payment plan. The government will forgive any balance if the borrowers have worked for at least 10 years and made 120 monthly payments. PSLF has been known for being inconsistent. Since its inception, 2.1% of all processed applications have been approved. To make forgiveness more accessible to qualifying borrowers, the U.S. Department of Education will be overhauling the PSLF program in the coming year. Income-Driven Repayment Discharge This approach will leave you in debt for between 20 and 25 years.
Forbearance and deferment: Your loan term can be extended if you agree to forbearance. Interest may also accrue while your payments are suspended. Forbearance or deferment are not the same thing as loan forgiveness. Although you will no longer be required to make payments for a set period of time, you still have to repay the principal amount and accrued interest.
The CARES Act: Payments were suspended under the CARES Act and interest rates for federal loans were set at 0%. Borrowers who are pursuing loan forgiveness can still use the suspended payments to reach their required amount of monthly payments. Remember that student loan repayments will resume in February 2022, at the same interest rate and monthly payment as usual.