February 28, 2017

Tips for Paying Off Your Student Loans Faster

Yael Morowati

The graduating class of 2016 was the most indebted in U.S. history, as 70% graduated with student loans.  $37,173 was the average record level of debt per student, representing a 6% increase from previous year. 

Student loans could inhibit your ability to buy a car, start a family, or even move out of your parent’s house.  There’s some good news, however, since starting salaries are on the rise.  Also, if your total loan debt at graduation is less than your annual starting salary, you’ll be able to repay your student loans in 10 years or less.  Since most of you may already be repaying your loans, I’ve compiled some suggestions for you to get on the right track. 

1.Trim your spending

If you’re looking for other ways to increase your income, then trimming your monthly spending is advisable.  Think long-term and out of the box, move to a cheaper neighborhood or apartment, eat at home or pack your lunch, cancel the cable, give up alcohol and fancy restaurants, and create added avenues for side income. 

If you’re concerned that this method will eat into your adventurous lifestyle, then take this on periodically throughout the year.  You won’t have to do it the rest of your life, but doing this in increments can alleviate some financial stress.  Get creative and stay motivated by focusing on paying off student loans faster.  Hold off on purchasing that new gadget you’ve been eying and use that money toward student loans.

2. Make more than the minimum payment

If you can manage it, pay your student loans biweekly in two segments. Instead of 12 payments per year, submit 26 half payments.  This is one of the easiest ways to reduce your debt. By doing this, you’ll make a full extra payment over the year. The real strength of this strategy is that if you receive bi-weekly paychecks, you shouldn’t feel the pain of paying the extra amount.

Take the payments you have and add extra money to the payment. You should already have payments set up, so anything extra goes straight toward your principal.  This eliminates any indecision and makes it harder for you to change your mind.  Even if you can only afford an extra $50 every month, it’s something. Start there, then gradually increase this amount.

3. Refinance

Refinancing your loans is one of the best moves for paying off your student loans faster. Refinancing will decrease your interest rates, so more of your payments go towards paying down your student loans.  When you refinance your student loans, you’ll get one consolidated loan with one monthly payment. You’ll likely just want to include loans where you can actually decrease your interest rate.

If you have good credit, you may be able to score a lower interest rate by refinancing or consolidating your loans.  Depending on how big a balance you’re trying to pay down, this could potentially save you thousands of dollars.

4. Seek out sponsored support and forgiveness

The accounting firm, PricewaterhouseCoopers, announced that it will give associates $1,200 a year toward student debt. While this perk isn’t as mainstream as health insurance, free snacks or paid vacations, it’s an invaluable incentive worth negotiating at your performance review.  Just 3% of companies offer similar assistance now, and it looks like more companies will be adopting this model.

Depending on your chosen field, you may also be eligible for a specialized repayment assistance.  These are common for law school alumni, teachers in schools serving low-income families, health care providers working in shortage areas, and nonprofit or government employees.  Certain jobs may offer forgiveness for part or all of your student loans.

You need to meet all the requirements and complete the full term of work required to get any forgiveness. Since these forgiveness programs are typically used in conjunction with income-based repayments, your payments will decrease but interest charges will nevertheless accumulate.

5. Take advantage of tax deductions and credits

If you’re paying off student loans, you’re probably already eligible for the student loan interest deduction on your taxes. Each year, you may deduct up to $2,500 on your taxes for the interest you pay on student loans.

While you must meet other requirements, generally a lot of student loan holders in their 20s are eligible. This deduction can be taken even if you don’t itemize your taxes.

Tax credits may be even more valuable than tax deductions. In general, a $2,500 tax credit will save you more money than a $2,500 deduction will.

You may be eligible for tax credits if you’re currently paying tuition, even while you’re attending grad school.  It’s worth checking out if you’re currently in college or thinking about going back to school soon.

6. Avoid repayment programs

You might be focused on lowering your student loan payments, but if paying off student loans faster is your goal, you’ll want to avoid loan repayment programs.

Almost all federal student loan repayment programs are geared toward decreasing payments by lengthening the term of the loan, which means that it will actually take longer to pay off your student loans. 

7. Apply your raises

If you work at a job where yearly raises are part of the compensation, then consider allocating a portion of this amount toward your student loans.  Hold off on larger purchases such as a car, furniture, engagement rings, or vacations.  Take 25-50% of your raise and apply it toward your payments. Either increase your automatic student loan or transfer the money into a savings account.

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