The 11 Best and Most Creative Ways to Pay Off Student Loans FasterStudent Loans
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Are you dealing with excessive amounts of student loan? If so, you’re not alone.
Nearly 70 percent of college students graduate with a significant amount of debt.
The average student loan these young graduates have to return is $37,172, which is about $20,000 higher than 13 years ago.
Dealing with such significant amounts isn’t easy when you’re young, at the beginning of your career journey, and lacking a steady source of income.
If you’re struggling under the financial burden, you’ll need to come up with strategies to pay off student loans. There are creative ways to handle this kind of debt and the following guide will highlight 11 of the best ideas.
1. Consolidation and Refinancing
One of the first and most obvious opportunities to consider when wondering how to pay off student loans early is consolidation and refinancing.
Is there a lower interest rate out there that will save you money?
If so, you may want to apply for another loan in an attempt to get better conditions and to return a smaller sum to the creditor.
Additionally, refinancing could make it possible for you to bring down the monthly instalment you have to pay – another opportunity to further reduce the regular financial burden you’re handling.
The best way to identify the optimal lender is to shop around.
Doing some online research will enable you to compare the terms and conditions, pinpointing the most favorable offers on the market.
Refinancing Options to Pay Off Student Loans
We have already discussed the topic of student loan refinancing in one of our previous guides.
There are numerous online resources you can use to compare student loan refinancing options.
2. Look for Tax Deductions
If you’re paying student loans, you are probably entitled to a tax deduction on your federal taxes.
The student loan interest tax deduction, as the name suggests, is applied to the paid interest on a post-secondary education loan.
The amount is either $2,500 or the actual interest you paid, whichever sum is lower.
While this isn’t exactly a way to pay off student loans, it enables you to save some cash and put it towards debt coverage.
Paying back student loans becomes easier when you free up some cash. After all, you’re entitled to the deduction and you should pursue it.
Do I Qualify?
To qualify for the deduction, the loan must have been taken out for educational purposes (for example, to cover tuition) during an academic period when the student was enrolled either as a part-time or a full-time student.
Qualified educational expenses under the program include tuition fees, textbooks, student supplies, student health fees, insurance and transportation costs.
More information about the student loan interest tax deduction and the qualification requirements can be found on the IRS website.
3. Start Paying Loans While You’re Still at School
To pay off student loans fast, you may want to consider the adoption of a repayment schedule while you’re still in university.
Most often, people begin thinking about their student loans when they’re out of college. The approach isn’t necessarily the best one.
You can get a part-time job while you’re still attending courses.
When you have a part-time job or a side gig and the support of your family, you can dedicate some of the income to the repayment of your student loans.
Making pre-payments while studying could actually enable you to pay off the principal.
It’s best to call your lender to make sure that the payments you’re making while still in college are applied to the principal rather than to the interest.
Keep in mind that some private loans will charge a fee if you start making payments while still in college.
Check the terms and conditions of your student loan to make sure you have the option to begin making early payments.
4. Enroll in Auto Debit
Missing a student loan payment can have disastrous consequences.
Late payments will affect your credit score – something you don’t want to experience early on in your life.
Enrollment in auto debit makes it possible for payments to happen without your involvement.
The money is deducted from your bank account on a monthly basis and you don’t have to do anything in terms of making sure that your student loan is being paid off.
The only thing to do is make sure you have enough money in your bank account to cover the respective installment.
When you enroll for auto debit, you may get a discount and this is where the opportunity to pay off student loans faster comes into effect.
The most common discount type is 0.25 percent interest rate reduction, FinAid reports.
While the percentage doesn’t seem like an awful lot, it can add up in the case of large student loans.
Credit Score Monitoring
If you’re worried about your payments and you haven’t enrolled in auto debit yet, you may want to carry out a credit score check.
We’ve reviewed Credit Sesame in the past and it is still one of the best options to test out.
On top of giving you free credit score monitoring, Credit Sesame also features individual financial analysis for members, expert tips and strategies for improving your finances.
5. Pay More Than the Minimum
This one is an obvious but still needs to be discussed.
Are you wondering how to reduce student loan debt fast? The answer is simple – ignore the minimum and opt for bigger installments.
The minimum payment will always work in favor of the loan provider because of the extended period for the application of the interest rate.
The smaller the period is, the less money you’ll have to give back.
To determine how much you can pay each single month, you’ll have to do a thorough budget assessment.
Increasing your student loan payments could also mean making some sacrifices in terms of lifestyle and entertainment.
Depending on how much student loan you have left and how much you want to increase the payments, you could save a serious amount of money ($2,500 or even more on the interest rate).
There are practical payment calculators you can use for the purpose of determining how much money a larger payment is going to save you in the long run.
6. Get Your Employer Onboard
Who said you have to deal with hefty student loans on your own?
Programs and grants to pay off student loan are available to young professionals through various channels.
Certain types of employees are entitled to this assistance – they’ll simply have to apply for it.
A government employee could get up to $10,000 per year in employer assistance for the coverage of federal student loans.
More information about the program is available on the website of the U.S. Office of Personnel Management.
The U.S. Military also offers financial assistance for the coverage of loans. There are options for Army, Air Force, Navy and National Guard members.
You get the picture. Seek programs and student loan forgiveness options in the respective line of work – chances are that at least one professional organization will be there to offer assistance.
Private companies could have loan assistance programs, just like entities operating in the public sector.
Read the Fine Print
Get in touch with your company’s HR department and inquire about the opportunities – it doesn’t hurt to ask for a bit of help.
There may be certain criteria and conditions for the provision of financial aid in the private sector.
Go through the requirements carefully to make sure you’re comfortable with all of them (there could be requirements like signing a contract and staying with the company for a certain period of time or agreeing to relocate to a specific branch).
7. Seek Student Loan Forgiveness Programs
Employers and public administration entities aren’t the only ones that have student loan forgiveness programs.
Do a bit of research and you’ll come across multiple such options.
Volunteering is a great choice for people who are fresh out of college and who are struggling with paying off student loans.
Not only that, volunteering teaches practical life skills and it also looks good on a professional resume.
Peace Corps Loan Forgiveness Program
If you volunteer with the AmeriCorps and the Peace Corps, you’ll be entitled to participation in their student loan forgiveness programs.
Service for the Peace Corps qualifies as public service employment.
Thus, volunteers will be entitled to participation in the Public Service Loan Forgiveness Program.
In addition, the Peace Corps has a program of its own called the Peace Corps Student Loan Deferment Program.
For each of the first two years of service, volunteers will be entitled to a 15 percent loan cancellation benefit.
For the completion of the third and fourth years, the volunteers will be entitled to a 20 percent loan cancellation rate.
To qualify for the available benefits, volunteers have to complete all 365 days of service corresponding to the respective annual period.
8. Income-Based Repayment
Anyone who is struggling with paying back student loans should consider income-based repayment plans.
Income-based student loan repayment plans have the monthly installments based on your current income level.
The downside is that you have to go through a thorough application process and you have to reapply every year.
In addition, an increase in your income will also signify an increase in the monthly payment.
The program comes with a nice perk. If you manage to make all of the timely payments within a period of 30 years, the remainder of the student loan will be forgiven.
9. Opt for Bi-Weekly Payments and Save Money
Did you know that switching to bi-weekly instead of monthly student loan payments can help you save money and pay off student loans faster?
Investopedia suggests this simple switch in payment method because of the multiple benefits it brings to the table.
Bi-weekly payments make it possible to save on the interest rate that’s going to accumulate.
Every two weeks, the principal amount is going to be reduced. This means that a smaller sum will be left for the interest to be applied on.
According to the report, a switch from monthly to bi-weekly payments saves over $1,000 in interest on a $30,000-loan at a six percent interest over the course of 10 years.
Additionally, bi-weekly payments make it possible to squeeze in an extra month’s worth of payment each year.
Paying every other week contributes to 26 annual payments. If you think about it and do the month, there should be 24 payments – 12 months, two payments per each. This, however, isn’t the case.
Before jumping on the opportunity, make sure that your loan provider enables both bi-weekly and monthly payments, enabling you to make the switch when needed.
10. Refrain from Extending the Repayment Terms
An extension of the repayment terms is possible with many kinds of federal student loans and something you should never opt for.
Graduate repayment plans, income-driven repayment plans and extended repayment plans all enable such options.
These programs are intended for people who are going through a period of financial hardship.
The income-driven repayment plan has already been discussed as an opportunity you should utilize if you don’t make enough income.
Extended Terms Means Added Interest
The problem with extending the repayment terms is that you will be responsible for the student loan over the course of a longer period of time.
A longer period of time comes with an added interest, which increases the amount you owe.
You will end up paying a lot more than if you shorten the term for repayment.
Thus, come up with a budget, do the math and work hard towards making bigger instalments. This decision will make a lot more financial sense in the long run.
11. Use Cash Winfdalls
The final way to pay off student loans we will discuss today focuses on cash windfalls.
A cash windfall is created when you receive a large sum of money out of the blue.
It could come in the form of inheritance or a lottery prize, if you’re lucky enough.
Resist the Temptation
Receiving a cash windfall will result in a serious temptation.
Chances are that you’d want to put the money towards something you’ve long dreamed about – a new house, a new car or traveling the world.
Using a cash windfall to pay off a student loan, however, may be the smartest thing to do.
Just like an increase in the monthly installment, the payment of a lump sum can reduce the amount you’re going to pay in the form of student loan interest.
A cash windfall is not something you should be relying on to get your finances in order.
Still, if you suddenly come in possession of a large sum of money, you’ll need a good head on your shoulders in order to make the best decision for your future.
Get Expert Help
If you don’t know which choice is the best one, talk to a financial consultant.
A professional will analyze your current situation, make a budget and assess your debt.
Based on this information, a financial consultant will provide sound advice about the best use of the cash windfall.
Very often, the best use of a large sum of money is covering at least a portion of the debt in an attempt to end up paying less overall.
Think about the Future, Get Out of Debt Today
Getting out of debt should be your number one priority when you get out of college (and even before that).
Yes, financial discipline will be required to make your student loan disappear.
Still, the freedom you’ll enjoy once you’re in the clear justifies all of the sacrifices you’ll have to make in the months, maybe even years, after graduating.
Will you travel the world? Start a business?
Don’t hesitate to share your ideas in the comments below.
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.