6 Ways to Pay Off Your Student Loans Faster

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The Title

Student loan debt can be prohibitive to your financial mobility, making it difficult to buy a home, purchase a vehicle or even have children in some instances. When you consider the average student loan debt is $29,800 for 2018 graduates, and some lenders charge interest in the neighborhood of 14% for these loans, it’s scary to think how hard it could be to pay off this level of debt.

Since time is literally money in this situation, quickly and effectively paying down student loan debt should one of your first financial priorities after college. Luckily, there are several different strategies you can employ to help you do just that. Here is a list of 6 ways to pay off your student loans faster.

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Delay Gratification

The longer you carry around the burden of high interest rate loans, the more you’re going to pay for it in the long run. While it might be fun to upgrade your car or apartment when you get the new job, the increase in rent and car payments restricts your ability to devote more of your income towards debt re-payment.

If you can help it, try to prolong any added expenses for a few years. This includes cable TV, upgrading to a newer car (unless it’s an absolute necessity), taking on expensive cell phone plans, eating out at restaurants daily or renting that awesome downtown apartment. Its called delayed gratification…. Say “no” to yourself today….. so that you can say a big “YES” to yourself in the future.

It doesn’t mean you don’t deserve nice things. After all, you worked hard to earn the place you’re at in life… and a treat here or there is good for your work/life balance. At the same time, when you take in to consideration the wisdom of paying off student loan debt fast, you’ll be saving yourself thousnads of dollars, dollars that could be put to better use than needless interest rates.

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Get Yourself a Budget

You may understand the wisdom of becoming financially mature but need some help getting there. Creating a manageable budget is the first step in understanding just how much disposable income you may be able to devote to paying down the principle on your loan. There are many helpful online tools available, like Mint.com or YNAB (You Need A Budget). You can also consult personal bankers at your credit union or bank and there are consumer credit counseling services that offer budgeting advice when you’re starting out on your own.

You can also turn to a friend or relative who is good with money and has gone before you, learn from their mistakes and glean their wisdom. Share with them your goals for paying down your student loans, listen to their advise. By inviting people in to your journey, it can hold you accountable and help you receive the fresh insight you may need to maximize your financial picture.

By doing the leg work of creating a budget and excercising some self-discipline to stick with your budget you will be charting a course of healthy financial behavior resulting in you being free of student loan debt sooner.

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Pay As Much As You Can Monthly

It’s tempting to pay the minimum balance each month and use that extra money for other things. However, in some cases where your interest rate and balance are high, it’s the financial equivalent of throwing your cash into a blender in that it doesn’t put enough of a dent in your balance due.

A better plan of attack is to try to double your minimum balance due each month. This might seem like a tall order, but let me give you an illustration of why this works:

Say your total debt was $30,000 when you graduated college and your lender(s) charge an average interest rate of 7% APR. Currently, you’re paying the minimum payment of $230 monthly. By staying this course, you’ll pay off this loan…in 20.6 years! What’s even more staggering is during that time you’ll pay an additional $26,577 in interest payments, which is almost the equivalent of doubling your original debt…. That is as insane as it sounds.

Now let’s look at what happens when you double your minimum payment. Instead of paying the $230 monthly, you pay $460. Under this plan, you’ll pay off your debt in 6.9 years and pay an additional $7,862 in interest. Taking this route will save you $18,715 in interest charges over the life of the repayment cycle…That is as wise as it sounds.

Maybe you fall in the middle of this like many borrowers do. You can afford to make more than the minimum payment but paying close to $500 monthly is too much. Instead, try to pay an additional $100 on top of your monthly payment. Doing so will pay off your loan in 10.8 years and you’ll pay interest charges of $12,874, which will still save you $13,703 in interest charges over the life of the loan.

As you can see, paying a little bit more now goes a long way when you do it consistently. Even if you’re able to pay a little more than the minimum payment, you can halve the repayment term, which will save you enough money to do a lot of things like making a down payment on a home, investing the money into a retirement account or upgrading your lifestyle.

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Apply Your Bonuses and Raises to Your Debt

As you gain more experience in your field, you may receive promotions and bonuses. And while you might feel tempted to use the added benefit to treat yourself, you can do a lot of good now and for your financial future by applying that money to your student loan payments.

As we illustrated above, even making a little more than your minimum payment goes a long way towards reducing how long you have to pay on your student loans. With this in mind, here’s a good approach when you receive a raise.

Instead of pooling that money in with the rest of your income where it’s more difficult to keep track of, set up an automatic payment from your checking to your savings or money market account for the raise in pay. It could go in to a “rainy-day” fund in case of emergency or you could save this pay-raise each month and use to it to pay down your principle.

Another strategy is to use your bonus or commission earnings on your debt repayment. With this, you can make one larger payment toward the principle or spread the bonus out similar to the way you would with a raise.

A slighty less effective route is to take at least a portion of your raises and bonuses to pay down debt. Remember, the quicker you pay it off, the less you’ll pay for it and you’ll be on the road to a debt-free future quicker.

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Take a Job That Offers Student Loan Repayment

Some innovative companies see how student loan debt affects their employees, so they offer perks to help you pay down your debt quicker. Typically, this works similar to other employee benefits in that you receive a maximum benefit cap–this is the amount the employer will contribute towards your student loan repayment.

If you receive a job with these perks, it’s important to understand eligibility requirements. For some, they might only offer the benefit if you are making payments regularly and not under forbearance or deferment.

Some companies might also have a vesting period, where you’ll have to remain with the company for a specified time after receiving the benefits. If you don’t fulfill your obligation, then you might owe them some money on the way out.

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Work in a Field That Offers Student Loan Forgiveness

There are fields you can go in that forgive sizeable amounts of your debt. The teacher loan forgiveness program allows you to forgive up to $17,500 of your student loan debt after completing five years of consecutive teaching in an educational service industry or a low-income school.

There are eligibility requirements you must meet such as:

  • Having a good payment history on Federal Family Education or Direct loans
  • Teaching at a school for low-income students
  • Working for five consecutive years in this capacity with one of those years being after the 1997-1998 academic year, according to the Department of Education
  • Possessing a Bachelor’s degree
  • Receiving full teaching certification from your state of residence

You can find which schools qualify under the low-income status through the Annual Director of Designated Low Income Schools for Teacher Cancellation Benefits Directory. You can also consult the Department of Education for any qualification questions pertaining to your situation.

Along with teachers, many specialized fields have student loan forgiveness options available. To demonstrate, the U.S. Department of Agriculture offers veterinarians student loan repayment help of up to $25,000 annually for three years if you work in areas they deem underserved.

Meanwhile, if you work with a non-profit or government agency, you can receive student loan forgiveness after completing 120 qualifying payments on your student loans. Even after completing the payments, you’ll have to apply for the forgiveness and be persistent to receive the benefit.

If you don’t work in a specialized field, there’s an effective way to lower your length of debt repayment and save thousands of dollars by doing so.

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Refinance Your Student Loans

It isn’t uncommon to have multiple student loans with different providers. What becomes problematic is keeping track of all the different accounts, especially as it pertains to interest rates assessed and principle amounts.

Adding further credence to the dilemma is if you have loans with private lenders. Private banks can charge much higher interest rates than the federal government, where it isn’t uncommon to have a loan with an interest rate in the double digits.

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Why the Interest Rate Matters: Making Sense of the Numbers

If you have an interest rate average among your lenders of six or seven percent, then it might seem like it isn’t worth the hassle of refinancing. Yet, there is evidence that proves otherwise.

Using the same example we did before, say you have $30,000 in total loan debt at 7% interest and your minimum payments are $230. As know, this approach will take you almost 21 years to repay the entire debt.

That said if you have good credit, you should be paying less. Therefore, you refinance your loans and you lock in a great rate of 5%. This might seem like a minor change in the overall picture, but it isn’t.

The difference is you’ll pay off your loan in 15.8 years, a difference of almost five years. Furthermore, you’ll pay $13,374 in interest fees, saving you $13,203 in total loan costs.

Knowing that the length of repayment affects your loan’s total cost, it’s vital to find the best interest rates for you. That said, knowing who to refinance your loans with can truly save you thousands of dollars and countless moments of stress. Here are some refinancing options for you to consider:

Online Lenders

We conduct many of our financial transactions online as it is, so refinancing your loans online seems like the simplest solution. The process is simple, you apply through the lender’s website, who’ll process your application quickly–it isn’t unusual to receive a decision in as little as a few minutes. From there, you supply your student loan information for every lender, including the payoff amounts, account numbers, and mailing addresses.

Once they finalize your loan, they will pay off your previous lenders. Moving forward, you pay them one fixed monthly payment for all of your student loan debt. Some will even offer a further discount on your interest rate if you set up automatic payments.

When searching for student loan refinance providers, here are some things to keep in mind:

  • Loan types: Do they offer refinancing options for undergraduate and graduate loans? Will they refinance government and private loans?
  • Repayment options: Do they offer flexible repayment terms?
  • Interest rates: Do they offer fixed, variable or a hybrid option?
  • Fees: Do they charge an origination fee? (Some lenders do and it can add up fast)
  • Programs: Do they offer protection if I become unemployed? Do they have financial resources to help me better manage my money? Do they offer career support?

It might seem like a lot to ask, but when you’re dealing with tens of thousands of dollars, it’s important to be diligent when searching for the right online provider.

Credit Unions

Credit unions are excellent avenues to turn to if you’re looking to pay less on your loans. How it works is a credit union is member-owned, not owned by shareholders like many banks are. Why is this important? Because credit unions have more freedom to offer more favorable interest rates and terms that are less concerned with the bottomline.

Similar to online lenders, you’ll want to examine the credit union’s offerings to see how they can benefit you. It’s ideal to meet with a personal banker, who can help you go through the application process so you can learn what to expect along the way.

Peer-to-Peer Lending

Peer to peer lending might be another option for you to consider. The process is similar to applying for loans with online lenders or credit unions. The main difference is instead of a lender approving you for the loan, you have a coalition of investors doing it. This could include people or businesses.

Another distinction is how they rate your level of risk. With many banks, your credit score tells the whole story. But considering you’re leaving college and joining the workforce, that isn’t the most accurate depiction of your financial situation.

Instead, some peer to peer lenders use criteria that includes your credit score, your income potential, your field of study in college and more to assess risk. As you can imagine, this presents a more balanced idea of what your financial outlook could be.

Moreover, the application process runs the same as it would with banks or credit unions. Many lenders offer a pre-qualification process where you can learn the rate you qualify for in a few minutes. A quick note, unless you’re in the upper echelon of its ratings, then it’s going to be harder to qualify for a lower rate.

After applying and receiving approval, the lender will direct deposit the money to you. From there, you can write checks to pay off your student loan lenders then make one payment to the refinance provider. And since most have repayment terms of three to five years, this could save you a lot of money in total loan costs.

Repaying student loan debt is for many a monumental undertaking. Yet there are many options available to help manage your student debt faster and more effectively. By using some helpful strategies you can cut down the repayment time and therefore save yourself thousands of dollars making it worth your while to do some research and carefully consider all of your options to make the best decision for your financial future.


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June 5, 2019

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