By Hanneh Bareham, Bankrate
While some experts say that you can't put a price on a good education, many of today's graduates are stuck paying off student loans while trying to save for a house, pay their bills and start a family. If you’re feeling overwhelmed, try these ways to pay off your student loans quickly.
1. Make additional payments
If you can afford it, make larger payments to cut the principal more quickly and reduce the total payoff time. By reducing the principal balance, you're minimizing the duration of the loan period and the interest accrued.
For example, a $25,000 student loan with 6.8 percent interest and a 10-year payback period would cost $288 a month. Using a student loan calculator, you can see that paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years.
Another strategy is to add payments, sending in checks every two weeks rather than monthly.
"Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a 'paid ahead' status," says Jessica Ferastoaru, student loan counselor at Take Charge America. "This will allow you to pay down your principal balance more quickly and save money on interest."
If you have multiple loans, there are several strategies for choosing which to send those extra payments to. To save the most money, it’s usually best to start with the loan with the highest interest rate.
Key takeaway
Making larger payments will help you cut through the principal quicker, which will allow you to pay off your loan sooner.
2. Establish a college repayment fund
If you're not sure how much more you can devote to your student loans every month, set up automatic transfers to a separate savings account specifically for college debt. Transferring money automatically into savings is effective because you won't be able to spend it on something nonessential like clothes or dining out.
Just make sure to set up a separate account for paying back your college debt. Don't use a checking or savings account you already have, because you might be tempted to use that money for something other than your student loans. Compare savings accounts and put your money in a high-yield savings account to maximize your returns.
Key takeaway
Setting up an account specifically for your student loan repayment funds can be a great way to compartmentalize your finances or control out-of-budget spending.
3. Start early with a part-time job in college
Getting a part-time job while attending college is one way to keep college debt in check, because you can use those earnings to get a head start on paying down your balance.
Let's say you're able to work a part-time job that allows you to put away $500 a month. In a year, that's $6,000 you can put toward paying off your loans. What's more, you can earn up to $7,040 a year without affecting your eligibility for need-based financial aid.
Check your school's resources or career center to see if they're hiring for any on-campus jobs. Typically, on-campus jobs tend to be more understanding of unusual or busy class schedules.
Key takeaway
If you're still able to properly manage your coursework, a part-time job is a great way to earn enough money for a student loan savings account while learning time-management skills.
4. Stick to a budget
Not knowing how to manage finances properly can prevent students from paying off their loans quickly. That can lead to delays in pursuing more fulfilling financial goals. By planning and understanding your monthly cash flow, you can make some necessary sacrifices and avoid falling off the budgetary wagon.
"If you're trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget," says Ferastoaru. "If you're able to meet a savings goal each month by sticking to a budget, you can use that money to pay down your student loans."
Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to maintain a solid budget as a college student, use a student budget calculator to help you get on track and stay there.
Key takeaway
Your financial health and spending habits can greatly impact your ability to pay off your student loans. Be diligent about sticking to a budget during your repayment period.
5. Consider refinancing
If you're not sure how to pay off student loans quickly - or if it doesn't seem feasible - you may be paying too much in interest.
In this case, you might want to consider refinancing your student loans for a lower interest rate, a shorter repayment period or both. While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could also allow you to pay off your loans faster.
Timing is key with this strategy. Your credit score is typically going to be at its lowest immediately after graduation, which generally means that the interest rates you're offered will be higher. Many lenders also require you to have stable income or employment history to qualify. This makes it doubly important to shop around with a few lenders in order to see which offers you the best rates.
You can refinance your loans more than once, which may be worthwhile if you drastically improve your credit score or increase your annual income.
Key takeaway
Refinancing may be a good option if you have private loans. While it's not for everyone, refinancing can help you score a lower interest rate or different repayment terms.
6. Apply for loan forgiveness
Forgiveness programs can eliminate all or part of your student loan debt, but each program has unique requirements and strict approval standards.
The most well-known program is Public Service Loan Forgiveness (PSLF). To be eligible for this program, you must be employed full time in a public service position by a government or nonprofit organization and make 120 qualifying payments under an income-driven repayment plan. Getting approved for the program is difficult, so read through the details carefully to stay on track.
The Teacher Loan Forgiveness program is another option. To qualify, you must have an eligible loan under the Direct Loan Program or FFEL Program and teach full time for five consecutive years in a low-income school or educational service agency. At least one of those years must be after the 1997-98 academic year. The program forgives up to $5,000 or $17,500, depending on your specialty.
It's also possible to have a portion of your student loans forgiven if you're on an income-driven repayment plan. Once the 20- or 25-year repayment term ends with these programs, any remaining balance is forgiven. If you hit the end of your repayment period before 2026, the forgiven amount is not taxable.
Key takeaway
If you're willing to work in a specific occupation and adhere to a variety of other program requirements, it may be possible to get a substantial portion of your loans forgiven.
7. Lower your interest rate through discounts
Most lenders will offer a 0.25 percent to 0.5 percent discount if you set up automatic payments on your loan.
In addition, private lenders may offer other interest rate discounts if you meet certain criteria, like making a certain number of on-time payments or taking out another loan with the same company. If you have private student loans, contact your lender and ask about any opportunities for interest rate reductions or discounts.
Key takeaway
It may be possible to reduce the interest rate on your existing loans by setting up autopay or asking about loyalty discounts.
8. Take advantage of tax deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private student loans.
You can claim this tax deduction if you're legally required to pay interest on a qualified student loan and your filing status is not married filing separately. There are also adjusted gross income limits for this program, which are set annually. You do not need to itemize to claim this deduction.
Those who qualify for the deduction will generally save a few hundred dollars on their income taxes, which could help with student loan repayment. "If you pay less in taxes, this could free up some extra money to pay down your debt. It's a good idea to speak with a tax advisor to make sure you're taking advantage of any relevant tax benefits related to your education," says Ferastoaru.
Key takeaway
The student loan interest deduction allows you to deduct up to $2,500 in interest paid on federal and private student loans.
9. Ask your employer about repayment assistance
There are many employers that have begun offering student loan repayment assistance or tuition reimbursement. Some employers, including Starbucks and Walmart, even offer free college for workers who sign up for degree programs within a chosen network of courses and schools.
Employers can contribute up to $5,250 toward an employee’s college tuition or student loan repayment assistance through 2025 with favorable tax treatment. This benefit is not considered taxable income for the employee, which is a major boon for workers who are pursuing higher education while continuing to work.
Employers can deduct the expense on their end as well, paving the way toward a considerable tax benefit on both ends. Check your employee manual or speak with your HR department to see what kind of tuition assistance or loan repayment options are available at your company.
Key takeaway
It’s possible that your employer offers a free college or student loan repayment benefit, but you may have to be flexible to take advantage.
Read more: What It's Really Like to Win Money to Pay Down Student Loans
How long should it take to pay off student loans?
It typically takes between 10 and 30 years to pay off a student loan balance, but the time frame depends on your loans’ interest rates, your total balance owed, your annual income and your repayment plan.
By and large, the choice of repayment plan has the greatest influence on how long it will take you to eliminate student loan debt. While the standard student loan repayment timeline is 10 years, you can also opt for extended and graduated repayment plans for federal loans that last for 25 to 30 years.
Income-driven repayment plans are also available; these let you pay a percentage of your discretionary income for 20 to 25 years before ultimately forgiving your remaining balances. If you have private student loans, on the other hand, you can usually select a repayment timeline that works for you, ranging from five years all the way up to 20 years. If you need more time, you can always choose to refinance your private loans.
Is it smart to pay off student loans early?
Whether or not you should pay off student loans early depends on your situation. If you can afford to pay more than the minimum payment and knock out your student loans early without sacrificing other financial goals, you probably should.
Then again, the fact that student loans come with low fixed interest rates and fixed monthly payments means that you may not be in a hurry to pay them off. If you have other high-interest debt like credit cards or personal loans, you should focus on those first to avoid paying more than you have to.
Whatever you decide, it’s crucial to know what you may be gaining - and what you may be giving up. Here are some of the benefits and downsides to repaying your student loans ahead of schedule.
Pros of paying off student loans early
Reach other financial goals sooner. By paying off your student loans quickly, you'll be able to put more of your focus into things like retirement, homeownership and savings.
Improve your debt-to-income ratio. Getting rid of a loan lowers the amount of debt you have relative to your income, which will help you qualify for other funding, like a mortgage or credit cards.
Pay less interest over the life of the loan. The less time you spend repaying your loans, the less interest you pay on them. By paying off your loans early, you can easily reduce the overall cost of your loans by hundreds of dollars.
Cons of paying off student loans early
Could lose eligibility for loan forgiveness. If you're working toward loan forgiveness through an income-driven repayment plan or Public Service Loan Forgiveness, making extra payments or paying your loan in full will reduce the amount you will see forgiven.
May miss out on stock market gains. Paying extra on your student loans instead of investing could cause you to miss out on gains. In some scenarios, you may be able to make more money through investing than what you would save in interest by paying off loans early. That said, investing does come with a lot of risk.
Draws focus from other forms of debt. Paying off student loans early isn't worth it if you are dealing with other forms of high-interest debt. If you have a credit card balance with an interest rate of 16 percent, for instance, it makes more sense to put extra payments toward that account rather than toward a student loan with 5 percent interest.
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