Aug 30, 2023
How To Pay Off Your Student Loans Faster
Is student loan debt weighing you down? You’re not alone. Americans owe about $1.78 trillion in private and federal student loans, and the debt burden is causing people to delay home and car purchases, marriage, launching businesses, and more. Paying off student loans is a long-term commitment for most people, especially if your principal is large. Making your minimum monthly payments by the due date is important for protecting your credit, but you may still be staring down a long loan term; the average borrower takes 20 years to repay their student loans.
If you want to figure out how to pay off student loans faster, put together a debt repayment strategy that focuses on two considerations: spending less on interest and making extra payments. The less you pay in interest, the more you can put toward your principal. And when you pay more than the minimum payment each month, you reduce the length of time you’re saddled with student loan debt. These seven tips can help you make a plan and put it into action.
1. Understand the impact of interest rates
You likely know the interest rate on your student loan, but do you know how much money you’ll pay in interest over the course of your repayment term? If you calculate the actual cost, you may be surprised at the number. You can use this student loan calculator to see how much interest you’ll pay over the life of your loan; that amount alone may inspire you to pay off your loans faster.
The average student borrows around $30,000 in pursuit of a Bachelor’s degree. Interest rates vary depending on the type of loan. But say you took out a $30,000 loan at the current federal direct subsidized and unsubsidized loan interest rate of 5.50%. If you make the minimum monthly payment and plan to pay off your debt over ten years, you’ll pay over $9,000 in interest on top of the principal balance. If you make extra payments to eliminate the same loan debt in five years, you’ll pay about $5,000 less in interest. And if you can refinance at a lower interest rate, you’ll also pay less in interest and could pay off your loans faster.
2. Budget for extra payments
Set a realistic budget for paying back your student loans, and stick to it. Many people find the 50/30/20 budget rule helpful: 50% of your income for needs like rent and groceries, 30% for wants like entertainment, and 20% for saving and getting out of debt. If you want to pay off student loans faster, consider shifting those percentages so you can make extra payments. For instance, you might decide to reduce some discretionary spending so you can devote just 20% of your income to wants and devote 30% to debt repayment and savings.
3. Watch out for debt repayment scams
When you’re trying to figure out how to pay off student loans faster, you’ll likely encounter lots of companies that promise to help you do just that. But be wary: scams are everywhere, so if something seems too good to be true, it probably is. Watch out for debt relief organizations that ask you for money upfront or that promise to immediately eliminate your debt. Do your homework before you commit to any new repayment plan.
4. Take advantage of the PSLF Program
The Public Service Loan Forgiveness (PSLF) Program offers as much as $10,000 in loan forgiveness for government and nonprofit organization employees. Here’s how it works: Full-time employees of qualifying organizations who make 120 qualifying monthly payments under a qualifying repayment plan are eligible to have the remaining balance forgiven on their Direct Loans. If you’re just starting your career and are interested in the government or nonprofit sector, do some research to see if your desired jobs and the type of loans you have qualify.
5. Consider refinancing your loans
If current interest rates are lower than the rate you’re paying, refinancing might be a way to pay off your loans faster. Are you making multiple student loan payments each month? When you refinance your existing loans, you can consolidate those loans into one new student loan. The new loan is used to pay off your old loans, and you’re left with one more manageable monthly payment. You can refinance if you only have one loan as well. In either case, you could benefit if you refinance at a lower interest rate.
There can be downsides to refinancing. If you consolidate federal loans into a private loan, you give up some deferment and forbearance options, and it could affect your student loan forgiveness eligibility. Also keep in mind that there may be fees associated with refinancing, so be sure the money you save on interest in the long term is worth it. And avoid the temptation to reduce your monthly payments as part of a refinancing plan; that route is less likely to help you pay off your student loans faster.
6. Reduce your housing expenses
For most people, rent is one of the largest monthly expenses. If possible, consider ways to reduce that financial burden. Solutions may include moving somewhere less expensive, living with family, or splitting costs with roommates. Reducing your housing expenses can free up some of your income to put toward extra payments on your student loans.
7. Reduce other expenses
Reducing your expenses across the board can free up money to put toward extra payments so you can pay off your student loans faster. Look for a variety of ways to save money, like reducing impulse spending, finding better deals on expenses like insurance and utilities, and letting go of some nice-to-haves that you can live without. A little austerity now means you’ll have more financial flexibility later.
Remember, student loan debt is temporary
With careful planning and discipline, you can get free of student loan debt sooner than you think. Student loan debt is temporary; when you plan out how to pay off student loans faster, you can take more control of the timeline. Federal Student Aid has handy calculators that can simulate various scenarios, such as eliminating your debt in less than 10 years or developing the fastest plan to pay off $200k in student loans. The most effective way to pay off student loan debt is unique to each individual; these tools can help you make a plan for your particular circumstances.
For many people, getting out of student loan debt quickly is worth the effort because it frees up money to save for goals like buying a house or contributing to a retirement account. And the faster you pay off your loans, the less you spend on interest over the long term; that’s money you can save and invest for your future.
Stash can help you stay on top of your spending with built-in budgeting tools and helpful insights about where your money is going. Get ahead on your student loan payments today so you can focus on your long-term financial goals tomorrow.
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