Student debt in the United States is now a $1.56 trillion problem – a record high. The class of 2019 graduated with two things: a degree and about $29,000 in student debt.
For many students, taking out student loans is the only way to afford college and get a degree that’ll unlock their career path. Unfortunately, these loans can take you back financially. Millions are struggling to pay off these loans.
If you’re among those struggling, you might be on the verge of hopelessness. We’ve got good news!
Continue reading for a couple of effective strategies for paying off student loans.
1. Start Thinking of Repaying Your Loans While in College
A mistake most student loan borrowers make is borrowing recklessly and not thinking about the consequences while still in college.
Who can blame you?
When in college, the last thing you want to think about is how to repay your student loans. After all, you’re already busy with your studies and other aspects of college. Not to mention that you’re ever broke.
Well, we’re here to tell you that if you’re still in college, you’re in a good position to make a big difference as far as your student loans are concerned.
When you go through college with your student loans firmly in mind, it’s easier to develop a mindset that’ll enable you to start tackling them. For instance, you’ll be well aware of things like interest rate, which affects how much you’ll repay on a loan. In the event that you need to take out another student loan, you’ll be careful to find one with the lowest rate.
Also, if you’re lucky enough to find a job while in college, you’ll be in a better position to start saving or even paying off your loans. The earlier you start, the easier it will be for you to pay off your loans.
2. Understand the Type of Students Loans You Have
It’s not uncommon to find students or graduates who don’t know much about the nature of their student loans. Don’t be like these people.
Broadly speaking, there are two types of student loans: federal loans and private loans.
Federal student loans are offered by the federal government. They offer a range of benefits, including a lower, fixed interest rate and income-driven repayment schedules. These benefits are cast in the law, meaning you’re entitled to them.
Private student loans are offered by commercial lenders, such as traditional banks and credit unions. These lenders set their own requirements.
In general, federal student loans are cheaper and more flexible than private student loans.
Understanding the type of loans you have is key to developing an ideal repayment strategy. This is because even under federal student loans, they are subtypes, each with unique requirements.
It’s also possible to have both federal and private student loans. In this case, look at whether your private loan has a variable or fixed interest.
3. Make Extra Payments
It can take 10-25 years to clear off a student loan. This is a long time and can be taxing on your wellbeing, especially if you don’t like being in debt.
If you’re anything like most people, you want to pay off these loans as quickly as possible.
Of course, it’s understandable if you want minimum payment student loans, but if you can afford to make extra payments, do it. The more you pay, the quicker you’ll be done with your student loans.
You’re probably wondering how you can manage to make extra payments in an economy where many workers are living paycheck to paycheck.
Well, a lot depends on your mindset and lifestyle.
Are you the kind of person who’s always thinking of buying the latest electronics, eating out, going on road trips, and whatnot? If yes, embracing a minimalist lifestyle can free up funds from your paycheck, which you can channel to your student loans.
If you have multiple loans, each with a varying interest rate, it’s advisable to devote the extra payments to the one charging the highest interest. In the long-term, the high-interest loan will cost you a lot more if you don’t pay it off sooner.
4. Consider Refinancing
Refinancing is the process of replacing an existing loan with another one, usually with better terms.
For example, if you have a $10,000 private student loan charging 10 percent APR, you might be able to refinance it and get a lower interest rate, of course depending on certain situations.
Although refinancing requirements vary from lender to lender, you typically need to have a good or excellent credit score, a solid loan repayment history, and a steady income.
If your application is successful, refinancing can turn out to be a handy tool in your quest to pay off your student loans. Getting an interest rate reduction from 10 to 5 percent, for example, will shave off half of the total interest that’s being charged on the loan.
If you can start making extra payments on this loan, you’ll be well on your way to clearing it sooner.
5. Take Advantage of Loan Forgiveness Programs
If you have a private student loan, it’s unlikely that you’ll ever be eligible for loan forgiveness. Private lenders are in it to make a profit, so letting borrowers off the hook isn’t a plan in their playbook.
However, if you have a federal student loan, you could be in luck. In certain circumstances, it’s possible to have your loan discharged, canceled, or forgiven.
The government runs a number of aid programs, so you’ve to do quite a bit of research to know whether you qualify. Under the Public Service Loan Forgiveness Program, for example, you could qualify for loan forgiveness if you have made 120 qualifying repayments and you work for a qualifying employer.
If you find an opportunity to have your loan forgiven, canceled, or discharged, take it with both hands!
Deploy These Strategies for Paying Off Student Loans
Student loans serve a useful purpose, but just like any other loan, they can take you back financially. They must be paid, though. With this guide on the strategies for paying off student loans, you now know what you need to do.
All the best and keep reading our blog for more money tips and hacks.