Paying off college loans can come as a shock for many students once they graduate. In fact, a recent report from EducationData.org notes that 43.2 million student borrowers in the United States are in debt by an average of $39,351 each. With the impact of the coronavirus pandemic, it may be even more difficult for students to make loan payments on time.
Having a large loan balance can prevent you from reaching your financial goals and hold you back in terms of exploring different career options. Because of this, getting out of debt as quickly as possible should be one of your top priorities.
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Know how much you owe
Before you get started paying off your debt, you should know the details about each loan and know how much you owe across your different loans. Check the National Student Loan Data System for more information on your federal student loans.
Create a table of all your loans, including the type of loan (federal or private), whether the loan is variable or fixed, your total balance, current interest rate, term length, the total amount due with interest, and grace period until interest increases.
Once you have a clear picture of your loans, you can start crafting a strategy on which loans to pay off first. Typically, you should start with those with higher interest rates for maximum savings.
Pay more than the minimum amount required
One of Any Credit’s tips to getting out of debt is to pay more than the minimum amount required on a loan if you’re able. Even though it may be easier said than done, you’ll be able to minimize your loan term and get out of debt much faster.
Even a small amount like $20 or $50 more every month can make a dent in your loan payments. This way, you’ll be able to minimize the amount of interest you have to pay overtime and start tackling the principal balance you owe.
Set up a budget that works for you
Creating a budget is highly personal and finding one that can work for your needs and goals can take some time. After you get your first job, try to find a way to limit your spending so that you can spare some money to put towards your college loans.
Establishing a realistic budget means prioritizing the essentials like rent, utilities, groceries, and transportation, and seeing what you can do without. This means cutting down on things like monthly subscriptions, an expensive gym membership, and more. Making sacrifices now will help you pay off your debt much faster.
Consider taking on a part-time job or side hustle
Some extra income can make it easier to cover the remaining balance of your college loans. Searching for a second job is one way of generating some extra income that you can put towards your debt. However, you should try to find a job that makes the most of your skills. Consider being an academic tutor or a freelancer to have some flexibility on the side.
Alternatively, selling clothes and items you no longer wear can be an easier way to make some money if you’re too busy to take on more work.
Make the most of tax refunds and extra income
When the majority of individuals get a raise, they treat themselves and the extra income is gone before they know it. As you get promoted and gain a higher salary, you should do your best to pay off larger amounts of your college loans. Instead of spending it on a new smartphone and other luxuries, think about your debts.
In addition, make the most of your tax refund during tax season by putting this extra windfall towards your student loans. Your future self will thank you.
Think about refinancing your student loans
Refinancing loans may not be the right move for everyone. Before considering whether to refinance your loans, you should look at your own situation and consider the pros and cons of going to a lender. The process involves taking your loans to a federal or private entity who’ll pay them off for you, and you’ll owe them back for doing so.
The goal of refinancing is to obtain a better interest rate and payment terms so that you can pay a less amount every month and shorten the duration of your loan in the long run. You’ll also only own one lender instead of multiple lenders if you have several student loans.
If refinancing sounds like the right solution for you, you should do your research and ensure that you’re working with reputable organizations so that you don’t end up in even bigger debt. Look for consumer reviews and read over any contracts carefully before signing them.
Apply for loan forgiveness programs
If you qualify for them, forgiveness programs can get rid of a portion or even the entire amount of your student loan debt. However, each program has its own application requirements and approval process to go through.
The Public Service Loan Forgiveness (PSLF) is one of the most reputable programs that can get rid of your debt. To be eligible for this program in the first place, you need to be employed in a public service position by a government or nonprofit organization. You’ll also need to make repayments under an income-driven repayment plan over the course of 10 years.
In addition, serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program. However, some employers including labor unions, partisan political organizations, and for-profit organizations, including for-profit government contractors do not qualify for this program.
Another option is the Teacher Loan Forgiveness Program. To qualify for this program, you’ll need to have a loan under the Direct Loan Program or FFEL Program and teach full-time for five straight years in a low-income school or educational service agency. They can forgive as much as $17,500 from your student loans.
Find ways to lower your interest rate through discounts
If the interest rate on your student loan is extremely high, you may find a way to lower this number. For instance, the majority of lenders are willing to offer a 0.25% or 0.5% discount if you choose to make automatic monthly payments towards your loan.
There are also some discounts offered by private lenders if you make a certain number of on-time payments or have other loans with the company you’re working with. Before considering refinancing options, it’s best to contact financial institutions directly to see whether there are any opportunities for interest rate discounts.
Claim tax deductions you qualify for
You may not be aware of extra tax deductions that you qualify for, but according to the law, you may be eligible for up to $2,500 in tax deductions depending on your adjusted gross income. This amount is deducted from interest paid on your student loans on a yearly basis.
To be eligible for this tax deduction, you need to be legally required to pay interest on a qualified student loan and ensure that you’re not filing your taxes separately as a married couple. The gross income limits are set on an annual basis and are regularly adjusted.
If you’re lucky enough to qualify for this tax deduction, you’ll be able to save a few hundred dollars on your total income taxes which can be put towards your student debt. Consulting a tax advisor can help you take advantage of any education-related tax benefits that can help free up some of your funds.
Check whether you qualify for an income-driven repayment plan
If you’re having difficulty making payments towards your student loans, you may qualify for an income-driven repayment program. If your income is low enough, your payment could even be as low as $0 per month.
There are four different plans that those who have federal student loans might qualify for, namely the Revised Pay As You Earn Repayment Plan (REPAYE Plan), Pay As You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan), and an Income-Contingent Repayment Plan (ICR Plan).
It’s important to note that as your income increases, so will the amount of your monthly payment. In addition, while income-driven repayment plans tend to lessen your federal student loan payments, making smaller payments or extending your repayment period, might lead to higher interest rates over time.
Celebrate small wins and stay motivated no matter what
Sometimes, it may feel like you’re buried under a mountain of debt that’ll never go away. To stay motivated during your loan repayment journey, try your best to focus on eliminating one loan at a time.
It’s easy to feel stressed out and overwhelmed by numerous student loans on your plate, but celebrating small wins and creating milestones for yourself will help you stay on the right path.
If there’s one thing that you should remember, it’s that there’s no easy way or magic solution to get rid of your student loans. Every method requires effort and persistence, and eventually, you’ll get to where you need to be.
By keeping these steps in mind, you can fast-track your way to eliminating your student loan debt for good. Do you have any tips on how to handle your college loans? Feel free to leave a comment below.