Top 5 Tips to Pay Off Your Student Loans Smarter (And Faster)
Lack of college funds is the primary reason for students resorting to taking debt. There is no shame in having a student loan given the lucrative prospects of attaining a better academic qualification. However, there has been a rising concern given that the student loan growth rate balance is 513% faster compared to the GDP.
While this may seem daunting, education data shows that 54% of students would need a loan to cover their college fees. This leaves the average student loan for a public university student at $30,030 for a bachelor’s degree.
Resulting in the total student loan to $1.73 trillion borrowed by 43 million students; the estimated student loan debt balance by 2024 would reach $2 trillion. While the prospects of attaining a better academic qualification are high, not all can attain the projected success as two on ten fall behind in payment.
This is also true for those who didn’t complete their career course with 37% having a hard time repaying their student debts. One third of the student loan is owed by only 6.5% of the students, having a debt balance between $100, 000 - $200,000.
There, however, may be some reprieve through the CARES Act of 2020, with 35 million students eligible to qualify. In addition, the student loan forgiveness programs are also available but only 0.7% get to benefit from the 6.7% applicants.
If you may not qualify for this form of reprieve, how then do you repay your loan to avoid the life limitation that comes with having student debt?
5 Smart Tips To Paying Off Your Student Loan Faster
Implementing these proven smart tips will be pivotal in repaying your student loan within a set timeframe depending on your goals.
1. A Repayment Plan
There are four repayment plans offered by a federal loan at your disposal. Depending on your goals and financial capability, you’re free to pick and switch from one to the other whenever your situation changes.
You have the standard repayment plan, which is the default repayment plan offered unless you pick your preference. This plan requires you to pay off your loan within 10 years, with a minimum capped monthly payment.
With the graduated plan, you have a 10-year period to repay your loan with a two-year interval increment on your payment. On the other hand, an extended plan offers you a 25-year period for repayment with either a graduated or fixed payment.
While on the income driven plans (like REPAYE, PAYE, ICR, and IBR) you are eligible for payment reduction as per your income and family size. Loan forgiveness is one benefit you may receive after consistent repayment.
2 . Automatic Disbursement
An automatic pay platform, either through the financial app or direct deduction from the bank to pay for the loan, comes with perks like interest rate reduction. Having an automated deduction enables you to be consistent with your payments and not incur late fees.
The federal reserve estimates that 10% of students are behind on their payments with first-generation students more likely to give up or have difficulty repaying.
3. Bi-weekly
This smart option enables you to make one extra payment each year. All you have to do is divide your bills into two and make your payments after every two weeks. If you’re paying off huge balances, this can make a vast difference and you’ll be debt free earlier than expected.
4. Refinancing
If and when you get your prospective high-paying job combined with a good credit score, you can opt to refinance your student loan. This entails merging all your student loans into one and approaching a private lender for a loan to settle student debt.
This option enables you to secure a low interest rate, if you opt to pay a sizable monthly amount you’ll be able to get out of current debt faster. The downside is, once you use the refinancing option, you’ll no longer be eligible for federal program benefits.
5. Loan Forgiveness
You may maximize your chance to get a student loan forgiveness or assistance through your employer. A number of employers do offer to pay for an employee's student loan, as a perk to attract new graduates.
During the salary negotiation stage you can enquire about this perk. In exchange, the employer may require you to work for several years with a reduced salary to cover for the loan. You can also offer to work at a service capacity depending on your career path and you’ll be eligible for a loan forgiveness program. Check if you qualify for a Public Service Loan Forgiveness (PSLF).
References:
Student Loan Debt Statistics
Student Loan Debt Statistics (2021). Available at: https://educationdata.org/student-loan-debt-statistics (Accessed: 11 August 2021).
Student Loan Debt: 2020 Statistics and Outlook
Student Loan Debt: 2020 Statistics and Outlook (2021). Available at: https://www.investopedia.com/student-loan-debt-2019-statistics-and-outlook-4772007 (Accessed: 11 August 2021).
Wessel, K.
Wessel, K. (2019) Five facts about student loans, Brookings. Available at: https://www.brookings.edu/blog/up-front/2019/11/12/five-facts-about-student-loans/. (Accessed: 11 August 2021).
Student Loans
Student Loans (2021). Available at: https://physiciansthrive.com/student-loans/ (Accessed: 11 August 2021).
The Fed - Student Loans and Other Education Debt
The Fed - Student Loans and Other Education Debt (2021). Available at: https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-student-loans-and-other-education-debt.htm (Accessed: 11 August 2021).
Federal Student Aid
Federal Student Aid (2021). Available at: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service (Accessed: 11 August 2021).
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