How to Pay Your Student Loans Faster
by CashTime Loan Centers
Going to college can be expensive, unless you are one of the lucky few to get a full ride scholarship and/or receive enough grants to cover the full cost of a four-year college education, which is only about .3%. You could work your way through college, paying as you go, but that’s a tough thing to do if you’re carrying a full load of classes. In 2014-15, about two-thirds of full-time students paid for college with the help of financial aid in the form of grants and some scholarships. Approximately 57 percent of financial aid dollars awarded to undergraduates was in the form of grants, and 34 percent took the form of federal loans.
Even with the amount of student loans taken out, around $2.9 billion of federal grant money was left unclaimed after high school seniors eligible for Pell Grants, which don’t have be paid back, neglected to complete the Free Application for Federal Student Aid (FAFSA) in the last academic year, according to a study from NerdScholar. Roughly 70 percent of grads leave college with student debt, and over 44 million Americans currently hold a total of $1.4 trillion in student loan debt, According to CNBC. That’s trillion, with a “T” … and that’s a lot of student loan debt!
If you are burdened down with unpaid student loans, you have something in common with millions of other Americans carrying an average of over $37,000 in student loan debt. Most borrowers (research shows about 60 percent) don’t expect to be able to pay off their student loans until somewhere in their 40s, and a study from NerdWallet predicts that students who graduated from college in 2015 will have to delay retirement until the age of 75! If you would like to get out from under that debt burden sooner, we have some strategies you can put in place to help pay those loan balances off faster.
1) Get organized. John Foley, a CFP and VP at online lending website SoFi, suggests keeping records of all your loans in a safe place, including the amount, terms, payments, and interest rates. This may sound like a no-brainer, but if you borrowed every semester, you have a hodge-podge of loans from different lenders, and the amounts and interest rates probably vary. Once you start paying them off, you’ll be making multiple payments to multiple loan companies, and that could be a formula for trouble. If you should miss a payment, your credit score can take a hit. Staying organized and using the online bill pay service from your bank to make your payments on time can assure you are never penalized with late fees, and your credit score is not adversely affected.
2) Check into government loan forgiveness programs. If you plan to work for the government, be a teacher, or work for a nonprofit organization, you may be able to take advantage of debt forgiveness programs. The Teacher Loan Forgiveness program, intended to encourage individuals to enter and continue in the teaching profession, will forgive up to $17,500 of loans, or even cancel your Perkins loans if you teach for five years at a school that qualifies. The Public Service Loan Forgiveness program will forgive the balance of your direct loan after 120 qualifying payments if you work for the government or a 501(c)(3) non-profit organization.
3) Check out repayment plans based on your income. These are plans that allow lower payments based on your income. You may have to make payments for a longer period of time and possibly end up making a higher total payment, but some plans include partial loan forgiveness if you meet the qualifications.
4) Refinance and consolidate. Consolidating your loans can simplify your life by allowing you to make just one payment instead of several. If you can get a lower interest rate and/or more time to pay, you could reduce your monthly payment to make it more affordable. “If you are doing either forgiveness or income-driven repayment, don’t refinance or consolidate until you are certain that it won’t hurt your eligibility,” Foley says.
5) Make additional payments whenever possible. After you have checked into reducing the amount you owe, refinanced and/or consolidated your balances, start paying them off quickly, and make double payments if possible. The goal is to reduce the amount of interest you end up paying. If you can’t make double payments at the start, begin by making something larger than the minimum payment, and inform your loan company that the additional money is to be put toward the principal, not toward your next payment. Use any unexpected income (like tax returns, bonuses, gifts, etc.) to make additional payments on your loan principal.
Utilizing one or more of these strategies can help you accelerate the payoff of your student loan debt, and you may be surprised how quickly you can pay down your balances when you make it a priority to put any extra money toward your student loans.