If you are reading this, you likely figured out how to finance your college education. Hopefully, you are the proud owner of a degree and, unfortunately, a significant amount of debt. Just so you know, you are not alone. According to Make Lemonade, more than 44 million borrowers owe a total of $1.5 trillion in student loans. A 2019 Department of Education report found that the average amount of time for student loan holders to repay between $20,000 and $40,000 in loan debt is 20 years, and those with more than $60,000 in debt took at least 30 years to repay their federal student loans.
Your student loans may seem like they will be a permanent part of your life, but there are ways you can get out from under this financial burden sooner rather than later. The following tips can help you pay off your student loan faster.
Refinance Your Loans
Refinancing your student loans can be a great way to pay off your debt faster. According to Forbes magazine, “Student loan refinancing is the fastest way to pay off student loan debt.” This is especially true if you can consolidate all your loans down to a lower interest rate. Having one loan server instead of multiple private and federal loan servers can save you money and simplify your monthly bill payments. You can also choose a repayment period and interest rate options. This means you can choose an earlier payoff date. Be sure that if you choose to consolidate your loans for refinancing that you are getting a lower interest rate than your current loan offers
Pay Off Loans with Highest Interest Rates First
If you didn’t consolidate your loans, you should prioritize paying off the high-interest loans first. Using the “debt avalanche” method, you pay at least the minimum on all loans and add extra money toward the principal on the loan with the highest interest rate. After this loan is paid off, the extra cash would go toward the loan with the next highest rate, and so on until all loans are paid in full. This will save you money and pay off the loans faster.
Increase the Amount of Your Student Loan Payments
It may sound simple, but the act of paying a little extra toward the principal each month will allow you to pay off your loan faster. The lower the principal, the lower the amount of interest you are paying. If you set up an automatic payment system, you can designate a specific amount on top of your regular payment to go directly to the principal. This is a fairly painless way to pay off your loan faster, and even a small additional amount toward the principal can have a significant impact. Adding an extra $100 a month to a $100,000 student loan at 8% will allow you to shave one year off your loan and save you about $5,554. An additional benefit of setting up an auto-pay system for your student loan is that most loan servers will reduce the interest rate by 0.25%. Automatic payments are an easy way to simplify your bill payments and pay off your loan faster.
Another popular option to increase your student loan payments is to pay on your loan biweekly. By splitting your payment into two portions rather than one monthly payment, you will effectively be making one extra payment each year.
Change Your Payoff Date
Changing your student loan’s payoff date will allow you to be debt-free earlier, but it may require increasing your monthly payment amount. Changing the payoff date from 10 years to seven years on a $100,000 loan will require you to pay an additional $360 a month but will save you three years and $15,000. If you can handle the increased payment, this is a great option.
Use Financial Windfalls to Pay Down Your Loans
Although it might not sound like fun in the short term, using unexpected money such as gifts or raises as lump-sum loan payments will help you be debt-free a lot faster. Applying funds such as bonuses or tax refunds directly to the principal on your student loan can shave anywhere from two months to three years off your loan, depending on the payment amount. You can also create your windfall by trimming your expenses or earning extra money you dedicate to your student loan.
Student loan debt does not have to remain a burden forever. By taking active measures such as these, you can pay off your loans faster, with minimum effort on your part.
The College Benefits Research Group is here to help you navigate all aspects of this important part of your educational journey. We are here to answer any questions you have, from college admissions concerns to financial aid application process issues. Let us help you make this transition a smooth one.
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