According to the latest statistics, 48 million Americans have student loan debt and pay an average of $300 a month. While most people stay current with their loans, many don’t use strategies to repay their debt sooner. If you have student loan debt, you can benefit by paying more than the monthly minimum, reducing both the time and cost of eliminating debt.
You may also qualify for the debt-forgiveness program recently approved by President Joe Biden. It allows forgiveness for as much as $20,000 in student loans, depending on the student’s economic status. You can read about the new federal student loan relief here.
Even if you benefit from the new law, you may still have a loan amount you must repay. The following offers tips to pay off those loans faster and save on interest costs. It’s also helpful to contact advisors in your university’s tuition and financial aid office who can provide helpful information and connect you with the resources you need.
Steps to Pay Off Student Loans Quickly
Paying off student loans early requires developing a sound financial plan. It’s worth the effort. Much like a home mortgage or a car payment, making additional payments saves money on interest and accelerates the payoff date.
However, it’s important to know when it’s not a good time to pay off a loan early. Forbes notes that paying off a loan faster is not always the right move if you have to sacrifice money for your future retirement, or if you’re building a stockpile of cash to purchase a home, start a family or launch a business. It’s also important to build an emergency fund before paying off loans early.
With those caveats in mind, the following offers tips to pay off student loan debt early. Coupled with learning the strategies to afford your degree, they can make your financial position stronger as you reap the benefits of earning a college degree.
Pay More Than the Monthly Minimum
This is the most straightforward way to pay off student loans faster. Simply add extra money to your payment. However, it’s important to ensure that the extra payment goes toward paying off the principal of the loan, not the interest. Also, if you have more than one loan, the best move is often to pay extra on the one with the highest interest rate.
Refinance Your Loan
If you have a good income and a steady job, you may have the opportunity to refinance your loan. This allows you to replace multiple loans with a single, private loan. Search for a loan with a lower interest rate than the current loans, as well as one with a shorter payoff period. It may increase your monthly payment, but you’ll eliminate the debt faster and save money on interest.
Sign Up for Autopay
The federal government recommends that you sign up for automatic payments that allow the loan servicers to deduct student loan payments from your account each month. The main benefit is you will never miss a payment. Some services may offer an interest rate deduction if you sign up for this service.
Make Bi-Weekly Payments
Most student loan repayment plans require monthly payments. However, by making a payment every two weeks, you make an extra payment over the course of the year, reducing the debt slightly faster.
Eliminate Capitalized Interest
Even while you are in the grace period during your school years where you do not have to make a loan payment, interest accrues. Then, when repayment begins, that interest capitalizes, getting added to your debt balance. A way around this is to make monthly interest payments during the grace period, eliminating the interest before it accrues and capitalizes. This will leave you with a smaller balance to pay off once the repayment period begins.
Use Found Money
Found money refers to money that is in excess of your regular payments from employment each month. This can include bonuses, monetary gifts from family members, and other sudden, unexpected windfalls. While you may not want to use all this money toward paying off your student loan early, it’s wise to apply at least some percentage of it to your loans.
Earning a college degree can improve your income, lower the chances of unemployment, and broaden your intellectual horizons. By having a plan in place to pay for it in the fastest, most affordable way possible, students can improve their financial positions even more after graduation.
At Point Park University, students can contact the university to talk with our tuition and financial aid office to find the best paths for financing their education, including advice on how to manage student loans. It’s part of the University’s commitment to supporting the success of each student after they graduate.