Managing student loan debt can be overwhelming and take decades to pay off, often stretching over many years. While the typical federal student loan repayment plan is 10 years, the average student borrower requires 20 years that time to completely settle their debt. However, there are various avenues to expedite the repayment process and achieve debt freedom sooner.
Here are some of the best effective strategies to pay off the repayment of student loans.
1. Increase Your Payments
If your financial situation allows, consider making larger payments to expedite the reduction of the principal amount and shorten the overall loan repayment period. By diminishing the principal balance, you effectively reduce both the loan duration and the interest that accumulates over time.
For instance, suppose you have a $25,000 student loan with a 6.8 percent interest rate and a 10-year repayment term, resulting in a monthly payment of $288. By utilizing a student loan calculator, you can observe that increasing your monthly payment to $400 instead of $288 will enable you to repay the loan in less than seven years.
Another effective tactic is to switch to a biweekly payment schedule.
“Just make sure to inform your loan servicer to apply the additional payment toward your principal balance, rather than advancing your account into a ‘paid ahead’ status,” advises Jessica Ferastoaru, a student loan counselor at Take Charge America. “This approach will accelerate the reduction of your principal balance, ultimately saving you money on interest payments.”
If you are managing multiple loans, there are various strategies to consider when deciding which one to allocate extra payments to. Typically, starting with the loan that carries the highest interest rate is the most cost-effective approach to maximize your savings.
2. Establish Automatic Payments
While it might be tempting to allocate any surplus funds at the end of the month towards your student loans, if your budget is tight and you typically have minimal extra funds, this approach could inadvertently decelerate your repayment progress.
If you’re uncertain about the additional amount you can consistently allocate to your student loans each month, it’s advisable to review your budget and ascertain the manageable figure.
Subsequently, consider configuring automatic payments at the start of the month to ensure that the designated funds are not unintentionally spent elsewhere. However, exercise caution when determining the payment amount to prevent straining your budget excessively.
3. Manage Your College Debt with a Part-Time Job
Securing a part-time job while pursuing your college education offers an effective strategy for keeping your college debt at a manageable level. By utilizing the earnings from this job, you can curtail the amount you need to borrow initially, thereby simplifying your repayment plan.
It’s worth noting that, for the 2023-2024 academic year, you can earn up to $7,600 without affecting your eligibility for need-based financial aid.
Begin by exploring your college’s resources or career center to identify any available on-campus job opportunities. On-campus positions often offer flexibility to accommodate unconventional or busy class schedules.
The proliferation of online job opportunities has expanded your choices, making it easier to find options that align with your availability and skillset. Additionally, consider taking on summer employment between academic years to boost your income further.
Another viable approach is to explore side hustles that can help limit your reliance on student loans. The array of side hustle options has grown in recent years, making them a convenient choice for college students. These ventures can be pursued in your spare time, granting flexibility that doesn’t bind you to a fixed employment schedule dictated by an employer.
Moreover, many side hustles enable you to set your own pay rate. Some of the top side hustles for college students include freelance writing, pet sitting, dog walking, social media management, and online tutoring.
4. Adhere to a Financial Plan
Creating and comprehending your monthly financial picture can provide valuable insights into where you can trim expenses and redirect those funds towards your student loan obligations.
According to Ferastoaru, “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,” She adds, “By consistently achieving your monthly savings target through budget adherence, you can allocate those savings toward your student loan payments.”
Analyze your spending patterns and your proficiency in maintaining a budget. If you encounter challenges in budget management, consider using a student budget calculator to assist you in charting a course to financial stability.
5. Apply for Loan Forgiveness Program
Loan forgiveness programs, present the possibility of erasing either a portion or the entirety of your student loan debt. Nevertheless, it’s crucial to be aware that each program comes with its own set of distinctive prerequisites and stringent eligibility criteria:
a. Public Service Loan Forgiveness (PSLF): To qualify for the PSLF initiative, you must hold a full-time position in a public service capacity with a government or nonprofit organization. You must also possess Direct Loans or have consolidated other federal student loans into Direct Loans to be eligible.
Furthermore, you need to make 120 qualifying payments while enrolled in an income-driven repayment plan. Securing approval for this program can be challenging, so it’s imperative to thoroughly review the program’s details to remain on the right track.
b. Teacher Loan Forgiveness: To be eligible for the Teacher Loan Forgiveness program, you should possess a qualifying loan under either the Direct Loan program or FFEL program.
You must also engage in full-time teaching for five consecutive years at a low-income school or educational service agency, with at least one of those years occurring after the 1997-98 academic year. The program offers forgiveness of up to $5,000 or $17,500, depending on your teaching specialization.
c. Income-Driven Repayment Forgiveness: Another possibility for student loan forgiveness arises if you are enrolled in an income-driven repayment plan. Upon completing the 10-, 20-, or 25-year repayment term associated with these programs, any remaining balance is eligible for forgiveness.
Importantly, the forgiven amount is not subject to taxation if your repayment period concludes prior to 2026.
6. Reduce Your Interest Costs with Rate Reductions
Most lenders will offer a 0.25 percent discount if you set up automatic payments on your loan, and some may go as high as 0.50 percent with relationship discounts.
Furthermore, private lenders may offer interest rate reductions based on specific conditions, such as maintaining a consistent record of on-time payments or obtaining additional loans from the same lender. If you hold private student loans, it’s advisable to reach out to your lender and inquire about the possibilities for interest rate reductions and discounts.
7. Maximize Tax Benefits
The federal government extends a tax deduction for student loan interest paid throughout the year on eligible loans. This provision permits taxpayers to deduct up to $2,500, subject to their adjusted gross income. Importantly, this deduction encompasses both federal and private student loans.
To qualify for this tax deduction, you must be legally obligated to pay interest on a qualifying student loan, and your filing status should not be ‘married filing separately.’ The program also enforces adjusted gross income thresholds, which are updated annually. The noteworthy advantage is that itemizing your deductions is not a prerequisite for claiming this tax benefit.
It’s also a prudent strategy to allocate a portion or the entirety of your annual tax refund towards your student loans.
While student loan debt can present a substantial financial challenge, there are strategies to expedite its resolution, and achieving this doesn’t necessarily hinge on having a high income. These approaches vary in accessibility, with some, such as automatic payments, being widely accessible, while others may necessitate specific employment or financial circumstances.
When contemplating the path to swift student loan repayment, it’s crucial to assess the most suitable approach in alignment with your financial circumstances and individual objectives.