- Learning how to manage your student loans is a great way to get a leg up on becoming a financially savvy adult.
- If you can afford to pay more toward your loans now, it’s a good idea to do so and save money overall.
- Before pursuing any forgiveness program, be sure you understand the tax implications and seek guidance from a professional if you’re unsure.
Your student loan debt can feel like an unfortunate fact of life. Considering Americans collectively owe more than $1.5 trillion in student loans, it’s a bigger debt problem than credit cards or car loans. But it doesn’t have to be that way.
Learning how to manage your student loans is a great way to get a leg up on becoming a financially savvy adult. Get your debt under control now, and you can focus on building your career and saving money that much sooner. So learn how to pay off your student loans faster, smarter and cheaper so you can live debt-free.
Pick the right repayment plan
When you took out your loans, you were probably given a repayment term of 10 years. But did you know that’s not the plan you’re stuck with? If you need some wiggle room in your budget, you can investigate different repayment plans that might work better for you.
For instance, federal loans can be switched to income-driven repayment plans, which cap payments at a small percentage of your income. Plus, if you have a balance left at the end of the repayment term, it will be discharged (though the forgiven amount will be subject to taxes). You can also try graduated or extended repayment. Even if you earn a good income, there could be a federal repayment plan that helps student loans fit your budget better.
Keep in mind, though, that any plan that involves lengthening your repayment term means you’ll pay more in interest over time even if your monthly payments are lower. So if you can afford to pay more toward your loans now, it’s a good idea to do so and save money overall.
Make extra payments
If you don’t qualify for an income-driven repayment plan, you still have plenty of options. In fact, you can use your solid income to your advantage. One of the most effective ways to get rid of student loans fast is to make extra payments when you can. And you don’t have to spend hundreds of dollars a month to see a difference—even an extra payment of $100 a month can make a big impact.
For example, imagine you owe $50,000 at 5% interest and have 10 years to pay it off. Your monthly payments would be $530 and you’d end up paying a total of $13,639 in interest charges by the end of those 10 years. However, say you scrounged up an extra $100 in your monthly budget and decided to apply it to your balance. That would cut nearly two years off your loan and save you $2,819 in interest.
If you can’t swing regular extra payments, one-off contributions when you receive a birthday gift or work bonus help a ton, too. And if you don’t yet have to make payments because you’re still in school, within the grace period, or on deferment or forbearance, you should at least aim to cover the interest charges so you don’t have a bigger balance to deal with once it’s time to start paying the loan back.
Look into student loan assistance and forgiveness programs
In addition to paying down your loans as aggressively as possible, you might be able to get some or all of your debt discharged.
There are a number of programs that offer student loan forgiveness. Some require you to work in high-need areas, which are often in less desirable locations with under-average pay. However, major companies are also rolling out repayment assistance programs, so you’re likely to find an option that fits your lifestyle.
For example, the Public Service Loan Forgiveness Program forgives loans belonging to federal borrowers who work in public service and make 120 qualifying payments. You can also qualify to have some or all of your debt forgiven through other types of student loan repayment assistance programs (LRAPs) that award aid based on where you went to school, where you live or work, the field you work in and more.
Additionally, student loan repayment assistance has become an increasingly popular workplace benefit. However, before pursuing any forgiveness program, be sure you understand the tax implications and seek guidance from a professional if you’re unsure.
Enlist help from Mom and Dad
Finally, know that you don’t have to go at it alone. Your parents might be able to leverage their strong financial standing to help you get there, as well.
For example, parents can take out student loans in the form of Parent PLUS loans, which are federal loans designed specifically for parents helping to pay for a child’s education. It’s also possible for parents to borrow private loans.
Another option for high net worth parents is to leverage their investments to borrow for education costs. Known as securities-backed lending, your parents might be able to take out a low-interest loan using their portfolio as collateral.
Keep in mind that even though it’s great to get financial help from your parents, you should only accept it if it fits your family’s overall financial plan. Parents shouldn’t sacrifice their retirement savings to pay for college since they have much less time to make up the money. But if they can swing it, getting financial help from your parents can be a great way to keep the amount of debt you take on down and save money on interest. Just remember, you’ll owe them once you become a successful, debt-free college grad.