21 May Tips for Paying Off Your Student Loans Faster
Probably one of the most contentious debates of this century, student loans continue to be a bane for students who did not finish their planned course or degree, as well students who did graduate but continue to be saddled with a financial obligation they took on years ago. Of course, it is true that most students borrow money because it is the only foreseeable way they can manage to finish college; still, paying off student loans becomes a real burden in the years following graduation.
Right now, even after years of research and debate regarding the student loan problem saddling the U.S. economy, the government has yet to come up with a viable solution or alternative. Therefore, at this time, it falls upon those who have outstanding student loans to find ways and means to manage their situation.
How big is the student loan debt?
Currently, about 43 million American adults, or about one-sixth of the population above the age of 18, owe $1.5 trillion in federal student loan debt. This figure does not include the estimated $119 billion in student loans taken from private loan providers that are not supported by the government.
But because of the constant stream of new students availing themselves of loans and compounding interest, these figures continue to climb at a rate of $2,726 per second. There’s no way to easily calculate the actual numbers, but the total student loan debt is a steadily growing balloon that is seemingly out of control.
It also does not help that a lot of graduates are either unemployed or underemployed. According to the U.S. Bureau of Labor Statistics, as of April 2018, the unemployment rate for recent college graduates was at 2.1 percent. Meanwhile, 18 percent of college graduates are underemployed either in their first jobs or any of the jobs they hold five years after finishing their schooling.
U.S. wages also continue to stagnate, so even as inflation has slowed down a bit (1.7 percent as of August 2019, compared to 1.9 percent last year), Americans continue to feel the pinch of spending on their routine expenses on top of their student loan obligations.
It is no mystery then why more than a million Americans default on their student loans every year. In fact, about 40 percent are expected to be on loan default come 2023.
What can you do to pay off yours?
The numbers are grim, that’s undeniable.
However, you really have no choice but to find a way to make things work while slowly reducing what remains of your student loan until it’s gone. It would be a gargantuan undertaking but not impossible.
Of course, for you to do this, it will require a high level of commitment and discipline, serious sacrifice, and some savvy financial moves from your side. To make the process less painful, you will need to focus on the prize: becoming debt-free as soon as possible.
To guide you through the challenging undertaking of paying off your student loan, consider following these tips:
1. Extend your poor student mindset
Try to get away from the typical American way of thinking that graduating from college will have you set for life. It doesn’t – at least not for you, at the moment. There’s no need to treat anybody to champagne or have a fancy celebratory feast. Neither is it the time to consider treating yourself to something extravagant to celebrate your graduation or getting your first ‘real job.’
Don’t get carried away by thoughts of ‘carpe diem’ and YOLO being posted all over social media. There’s no need for you to go with the flow. If you can, swim against the current. It’s true; you may have a job and an adult salary, but instead of spending it on a whim because someone told you to travel as much as you can, use a portion of your salary to start paying (continuously) for your loan.
If you happen to save a little, good for you. That you can use for a trip somewhere, someday, after you’re done paying off your debts.
But if you’re barely scraping by, keep that poor student lifestyle alive. Share your room or apartment, eat ramen once in a while, and try to eat healthy without spending a lot by wisely budgeting your money.
Again, keep your eyes on the prize. Pain is temporary, and you’ll know it was all worth it when you’re finally debt-free.
2. Know exactly how much you owe and distribute payments as needed
A lot of people make a mistake of not keeping track of their IOUs.
Make a list of what you owe – whether it’s a loan you took from a private finance company or a bank or a car loan or credit card on top of your student loan. With a clear picture of how much you owe, you can allocate certain amounts to make regular payments for all. Aim to pay off the smallest loan first, while allocating minimum payments to others. This is what Willie Anderson, a financial advisor, calls the debt snowball method.
Gradually, you will be able to eliminate your loans one by one until you find yourself financially able to pay off your bigger loans. Sometime later, you can finally expect yourself to be financially free.
3. Make extra payments whenever possible
If your adult salary affords you the ‘luxury’ of paying more than the minimum for your loan/s, do so. This can save you a lot of money in the long run.
Imagine this, you owe $10,000, and you are paying with a 4.5% interest rate for a period of 10 years. If you pay an extra $100 every month, you’ll find yourself fully paid in less than half the time. However, make sure to clearly inform your loan service provider to apply overpayments to your current balance, and not to carry over the extra amount you are paying to what’s due for the next month.
Other sources that will enable you to pay extra would be cash gifts from your family, bonuses, and other types of incentives.
4. Hustle, hustle, hustle
If you want to pay off your debts much faster, you can also consider earning extra money as long as your schedule allows it. Again, discipline is key.
Finding a good side hustle is not an excuse to waste your financial resources on non-essential things. There’s no need to upgrade your phone to the latest model every single time a new one hits the market. Save your money intended for vices like cigarettes and liquor (which are expensive), and use it for paying for your loan – your health will thank you for it, too. Don’t let friends’ taunting you for living like a monk get to you. Real friends will support you, no matter what.
Remember, use whatever extra income you derive to increase your loan repayments whenever possible.
5. Become a volunteer
For those who have time to do volunteer work, there are opportunities open in organizations that extend assistance for student loan repayment to those who are willing to work on nonprofit programs. Adrian Nazari, CEO, and founder of Credit Sesame, a financial wellness company, says that such organizations match volunteers with the required skills to sponsors funding student loan payments after the completion of each volunteering program.
So, if you have the time and motivation to help others as you get help yourself, volunteering in such projects may be the boost you need to pay off more of your student loan.
6. Refinance what you can
If you have a steady job or a solid income stream, a history of on-time payments, and good credit (in the high 600s), you may want to consider taking advantage of a refinancing scheme. This means paying off even multiple student loans using a single private loan at a reduced interest rate. With loan refinancing, you can also choose to shorten your loan period depending on your capacity to pay.
However, when refinancing, make sure that you’ll be getting a better interest rate, and saving real money overall.
7. If you’re still in school but earning an income, start repayments now
Again, this depends on you having a job even while enrolled in college. If you’re hustling just to have some extra cash to spare, why not start using part of it to start your loan repayments now? This is quite feasible, and even more so if you’re still getting an allowance from your parents.
Doing this now will not only help you pay your student loan much faster but also save you a substantial amount of money that would have gone to the total cumulative interest of your loan.
But if you don’t have a part-time job now, you may want to rethink your strategy and start hustling right away if you have the time.
8. Enroll in auto-pay
Ask your student loan service provider if they can enroll you in an automatic payment program. This way, you stay on top of your repayments since they will activate auto-debit on your checking account on a set day every month. Some federal student loan providers even offer discounts to those who sign up for auto-payment deductions.
For extra payments, you can make use of this option manually whenever you want. What matters is that with autopay, there’s no possibility of you ever missing a payment.
9. Make biweekly payments
You can program yourself to reduce your loan amount much quicker by making more than one payment each month. One way to do this is by scheduling payments that coincide with your two paydays each month. You also have the freedom to make random payments throughout the month.
Whichever strategy works for you – do it. What’s important is that you stay on top of your monthly dues, and perhaps even shave off a little extra from your loan outstanding in the process.
10. Get help from your employer
Use your bargaining power when you discuss your salary and benefits. If you get a stellar assessment in, say, a year after you first got employed with your company, use it as a bargaining chip if you hadn’t done so from the beginning.
Ask your boss if the company can assist you with repaying your loan. After all, whatever amount they can offer will be paid in full through a salary deduction scheme, for example. The important thing is that you’ve asked for it – you never really know what you can and can’t have until you try.
How about the student loan forgiveness scheme?
The Public Service Loan Forgiveness Program has stringent requirements for those who wish to apply, with the keyword here being ‘public service.’ This means that private-sector employees do not qualify.
Furthermore, it is extended to those who are employed full-time (or work more than 30 hours per week) in an ‘eligible federal, state or local public service job or 501(c)(3) nonprofit job.’ Moreover, applicants should have made a total of 120 scheduled payments, in full and on time, monthly, for a period of ten years under a qualified repayment plan, with the earliest repayment starting from October 1, 2007.
Despite the stringent requirements (which have led to thousands of rejections), once you are qualified for the program, you are ‘forgiven’ for the remaining balance of your qualified loan (e.g. Direct Subsidized Loans and Federal Perkins Loans). For most, this is equivalent to having part of your debt vanish into thin air. But to utilize this program, again, you need to ensure you submit all requirements to find out if you can qualify.
Take on the challenge of becoming debt-free now
As the nation continues to grapple with the complexities and serious consequences of student loans (which just keep growing), you need to do what you have to do.
You need to set your finances straight and deal with the problems of paying off student loans the smart way. Discipline, commitment, and focus will take you far – not just with this aspect of your life.
Do whatever you can; use everything at your disposal to make it easier for you to achieve your life goals – something that will only be possible after you have rid yourself of the burden of your student loans.
Keep your eyes on the prize every single time.
Need help or attorney-based services regarding your student loan or navigating the qualifications for a loan forgiveness program? Are you facing hardship and interested in seeing if you’re eligible for a loan modification program?