It’s no secret that attending college is expensive. From class tuition and books to the additional expenses of living on your own, be prepared to spend thousands of dollars a semester during your college career.
Many college students opt for taking out a student loan. So many go this route that you’ve likely heard talk about the student loan debt crisis in the United States. That’s because the student loan debt hit a record $1.56 trillion in 2020.
That’s a lot of money lent out to students across the country.
Want to avoid drowning in student loans and increasing that statistic? The following seven ideas may provide you with the help needed to pay back your student loans and get you closer to being debt-free.
Don’t Delay – Start Paying Your Loan Right Away
It’s common for a college graduate to have a grace period with their loan (a set timeframe before monthly payments kick in). As appealing as it seems to use up those payment-free months, you have to start paying that loan eventually so you may as well get it over with.
If you have the income to do so, make those payments as soon as you can to get it paid off quicker.
Use a Payment Plan That Is Best for You
You have your choice of two main methods for paying back your loan: the federal student loan repayments or the income-driven repayment plans for federal student loans.
Spend some time researching and learning about the available payment plans (look at some of these favorites, according to beststudentloans.com). Going with an option that suits your life the most can help make the payment process a bit more bearable.
Should You Refinance
Once you are out of college and working, you may want to consider refinancing. This varies by each graduate’s circumstances. If you have a good credit history and a stable income, refinancing may be attractive. If you have multiple private loans at high interest rates, consolidating at a lower rate is likely a good idea. However, refinancing takes you out of the federal loan system. This is not attractive if you want a payment plan based on your income, which is available in Federal programs. You also do not want to look at refinancing if you think you will qualify for loan forgiveness (for example, you work in certain public sector jobs where there are loan forgiveness jobs). If you have a bad credit history, the interest rates is likely to be much less attractive and sticky with existing programs is better for you.
Up Your Monthly Payments
Rather than planning to pay the monthly minimum, you may want to consider increasing your payments if you are able to do so. Paying the minimum is a sure way to extend your loan and may cost you more than prepaying.
Although the minimum payment will keep your finances in good standing, it’s only tackling a fraction of the loan. A good chunk of that minimum payment goes to the incurred interest, and the remainder goes to the principal of the loan (the actual loaned amount).
Upping your monthly payments even a bit can help pay your loan off quicker without adding more interest to the total.
Make a Budget (and Stick to It)
If you don’t have a budget going yet, you should start one right now. Budgeting provides you with a snapshot of your financial situation. It will tell you where all your money is going and if you’re heading down the path to more debt.
Set up a budget that focuses on your student loan. Make a section for your monthly expenses and a smaller bit for luxury spending (you need breaks from school). Track your spending and see where you can make small cuts. Whatever you cut back on can go towards your student loan.
Live Like You’re In Debt
If your lifestyle doesn’t reflect how much debt you have, it’s going to take you quite some time to be debt-free. Although it’s fun to party in college, is it coming at the expense of your future financial freedom?
Adjusting your lifestyle to one that has a higher focus on paying back your debt doesn’t mean you can’t do anything. You can still have an enjoyable life; you’re just living within your means. In a few years this will pay off and allow you to more toward securing your financial future and goals like home ownership (if that is what you want),
Never Miss a Payment
If you miss or are late on even one payment, it will start to hurt your credit score. This will make it more difficult to refinance and consolidate student loans if you want to do so in future. It will increase the interest rate you pay on everything from a car to an appliance purchase. Many landlords run credit checks on tenants. Some employers will check your credit history as well.
These seven tips above may not magically repay your student loan. They may, though, get you on the right path to paying it off quicker than expected.