A significant part of what makes us human are the different views each one of us has about one thing or the other. But one thing everyone can agree on is this: student loan debt isn’t a small issue. And paying off student loans isn’t easy. Debt.org reports that in February 2017, student debt rose for the 18th year, hitting $1.4 trillion dollars.1
Each person with a student loan had an average debt of $37,172.1 It isn’t fun when you get a paycheck from your job after graduating and have to spend the bulk of it on your student loan.
Most people spend a large chunk of their post-college lives repaying student loan debt. But it doesn’t have to be that way. To help pay down your student loan debt faster, start by rethinking your repayment plan strategy.
1. Pay More than the Minimum Required Payment
This is one of the most effective ways to reduce your debt. The way to do this is to take the payment you already have and add an extra sum to it. Because your payments are already set up, any additional payment you make will go to your principal.
If you want to simplify the process, opt for automatic payments with your loan servicer, adding the extra amount automatically. This helps prevent you from being indecisive about adding the extra amount to your payment. And it makes it harder for you to change your mind.
2. Look for Refinancing and Consolidation Opportunities
Loan refinancing for student loans, including federal student loans, is one of the best things you can do for yourself when it comes to paying off student loans faster. While refinancing, remember the aim is to reduce your interest rate, which can put more of your payment toward reducing your student loan debt.
If you successfully refinance several student loans, you can secure one consolidated loan that lets you to make just one monthly payment instead of multiple payments. You can also choose to refinance one student loan to get a better interest rate.
3. Get a Job that Offers Loan Forgiveness
Some jobs that offer loan forgiveness for all or part of your student loans. Sample jobs include teaching or public service work. Getting a job that offers loan forgiveness can go a long way, because you get added money on top of your salary.
The only potential downside to a job thta offers student loan forgiveness is that you may to work for the company for a fixed number of years as well as meet some other requirements to qualify for loan forgiveness. If you quit early, you’ll be back to paying off your student loan debt.
4. Run Away from Repayment Schemes
Steer clear of loan repayment programs that are income-driven. Most of these federal backed student loan repayment schemes aim at reducing payments by increasing the length of the loans. The result is that it will take longer to pay off your student loans, which will extend your debt,
Consider Pay as You Earn (PAYE) for example. This plan can potentially stretch repayment periods from 10 to 30 years, putting you in debt for a large part of your life.
5. Think About Your Debt Strategically
While adding more money to your monthly student loan payment is one of the quickest ways to pay off your student loans, you can also use that extra cash in other ways.
With student loans, the wise thing to do is to pay off the loans with the highest interest first. To do that, you use the “debt avalanche” method. You make only the minimum payment on all your loans and put the remainder on the loan with the highest interest rate until it’s paid off—so you’re paying it off first, but still making payments on all your loans.
Similarly, consider paying off private loans first before federal loans. Private student loans usually have higher interest rates and more rigid repayment terms compared to the federal loans.
By choosing to deal with the loans with the highest rates first, you end up saving money on interest. You can also consider doing the inverse by paying off loans with the lowest balances first. While this may mean you don’t get to save as much on interest, the psychological boost from closing accounts can be beneficial on your journey.
6. Choose Interest Rate Reductions
Reducing the cost of your loans and accumulating wins using the strategies above can result in smaller savings that add up and help you on your repayment quest.
A lot of loan services give users a 0.25% interest rate deduction on federal loan debt when opting for automatic payments. While this may not be millions of dollars, saving a few hundred dollars doesn’t hurt.
Aside from the savings you get from interest, making automatic payments part of your repayment plan can make life run more smoothly. Automatic payments eliminate worrying about missing or late payments, and not missing payments is good for your credit.
7. Maximize Tax Deductions and Credits
By repaying off your student loans, you may become eligible for the student loan interest deduction on your federal taxes. The student loan interest deduction can reduce $2,500 from your tax obligation each year.
You may also be eligible for tax credits if you’re paying tuition still, including while enrolled in graduate school. While there are no tax credits for paying off your student loans, if you’re a current or prospective student, check to see if you’re eligible for any tax credits. Some credits are worth up to $2,500 annually.
Happy learning and earning.