Graduating from college is often a thrilling moment in the life of a graduate.
A new start in the next level is a fantastic feeling- getting a new job and starting a life of their own. After getting into the real world, however, there is often that time of uncertainty as it involves paying off student loans, which is a significant responsibility.
Statistics show that seven out of every ten graduates hold student loan debt. In this article, we have outlined ways of paying student loans fast.
Paying off your loans fast allows you to save more, a move that enables you to achieve your financial goals. Here are some of the steps to help you clear the pending students’ debts:
Consider Paying higher than the minimum payment
Spending more than minimum payment may sound like the last thing to do, but it can help pay off your debt faster and in return achieve your goals.
Student loans have no prepayment forfeit, which means you can pay them off anytime. Time and again, students forget that failure to pay their loans results in accruement on the principal balance. Therefore, an extra payment on the standard monthly minimum can reduce the time and the overall cost of your student loans.
Organize periodical extra student loan payment
One of the best ways to pay off student loans faster is to make an additional periodical payment. As stated earlier, there are no prepayment forfeits; therefore, you can make arrangements for other repayments on top of the regular monthly payments.
Here’s how it works. First of all, make the minimum payment each month for a year. After that, pay an extra fee once every three months. This additional student loan payment can be of any amount that you can afford.
Note: It’s essential that you contact your lender in writing explaining that you intend to make additional payments many times a year. Stress that the extra payments should only apply to the principal(not to the subsequent month’s monthly repayment).
Failure to issue this instruction, it’s likely that your lender will hold the extra payment and apply it to the subsequent month’s payment -this implies that you would pay more interest.
Look at lump-sum student debt payment as a viable option.
How about skipping vacations each time you receive a bonus, tax refund, an inheritance or any cash windfall, skipping these big holidays and using the money to pay off student loans would be a shrewd move.
If you look at a lump sum extra payment calculator, you realize that you can save a lot of money with a one-time student loan payment in lump sum. Take, for instance, say you have $50,000 in student debt at an interest rate of 8% and a 10-year repayment term.
Here’s the much you can save:
- For $500 payment: Save $515 and pay off one month earlier
- For $10,000 payment: Save $8,423 and pay off 30 months earlier
It looks like a good move, right? There is no point in going for vacation having not settled your debts.
Apply for a student loan forgiveness program
Public Service Loan Forgiveness is for student loan borrowers who owe federal student loans and enrolled in a national repayment plan. These individuals are employed full-time in an eligible state, local or federal public service job who make at least 120 eligible on-time payments.
Teacher Student Loan Forgiveness is for full-time teachers who have five years of working (teaching) experience in an elementary or secondary school or educational service institution which serves students hailing from low-income backgrounds.
Furthermore, you can enroll in income-driven repayment programs and get student loan debts forgiveness for your federal student loans. It’s crucial that you are aware that this particular type of student loan forgiveness may lead to you paying income taxes on the forgiven amount.
Take advantage of the student loan interest deduction
Lenders offer a deduction on interest rates whenever you set up an auto-pay. Therefore, you need to capitalize on this advantage of student loan interest deduction so that you can clear your debts faster and focus on achieving your targets and expectations. Request for Form 1098E from your student loan servicer and make sure you meet these requirements.
Pay attention to shorter student loan repayment programs
Of course, the length of your loan term matters. The shorter your loan term (say ten years or less), the faster you can clear your student loans. Loans with more extended time take more time for repayment. It also means, that your interest is likely to be high. Also, note that income-driven repayment programs may reduce your monthly payment, the interest, however, still accrues on your loan balance.
If you are not qualified for student loan forgiveness program or you have a feeling that you’ll repay your student loans before receiving student loan forgiveness, then it will be good if you try and explore other available options.
Refinance your student loans
It’s a strategy that involves acquiring a new credit at a lower interest rate. It is in most cases the single best strategy to reduce your student loan interest rate.
This strategy enables you to pay off your existing student loans with a new student loan at a reduced interest rate. A lot of student loan lenders offer interest rates which go as low as 2.50% – 3.00%, which is lower than the federal student loans and in-school private loan interest rates. The student loan refinancing allows you to choose either fixed or variable rates or even loan terms that have a range of 5 to 15 years.
Some of the factors that the lenders use to approve student loan refinancing include assessing your credit profile, debt-to-income ratio, income and monthly free cash flow, among others.
Have control over your student loans; do not let it control you. Maximize on student loan deduction and avoid paying extra interest and as a result, save more so that you achieve your desired goals.