We can all agree on that paying off student loan debt is not a fun process. You are entering your new adult life full of freedom and opportunities. But you are entering it burdened down with debt before your first paycheck. What is student loan debt? The student loan is money borrowed to pay off student loan debt for higher education. There are many types of student loan debts for both public and private schools.
The recent statistics show that America is rapidly growing debt consumer with the average graduate students having $37,172 debt of student loan. The number of students with loan debt increased from 65% to 69% since 2004. The only drastic change, however, is the average amount of student loan debt. The amount has grown almost twice the rate of inflation. The standard repayment term for federal student loans is ten years. This plan is the default for every borrower.
The bright side of these statistics is that financing education is well worth for the majority of American students. Research of U.S. Labor Department statistics demonstrates that having a college degree helps you make more money per hour than without it. With such an amount of loan debt, it might seem like this could last forever — but it doesn’t have to. To find easy ways to become completely loan free, you have to update your debt repayment strategy.
Advantages of paying off your student loan earlier
Paying off your student loan debt earlier will lower your loan to income rate to get a loan easier whenever you need one. Indeed, it can help when you want to buy your first house, a car or want to get married. Once paid completely, you could put that money into an investment such as a mutual fund. And remember, if your business gets out of luck and you are bankrupt, you still have to pay back your student loan. Therefore it sensible to pay them off when you are sure you have the money.
Disadvantages of paying off student loan debts fast
However, there are logical arguments for not paying off your student loan earlier if you have to pay more amount per month to do so. You must take your financial situation into account and decide the most advantageous plan. One thing to consider is that student loan has lower interest. Loan debt is typically even lower than the credit card debt. Therefore, you should think of your needs and lifestyle first. If you will have to buy the required items with credit cards, to pay off your student loan, this means you might want to rethink that strategy plan.
Another valid argument that will make you not want to pay off your student loans early is that the federal government offers flexible repayment plans. The Department of Education provides eight different payment plans, and some are for borrowers with low incomes. However, private lenders are not so flexible. You can choose one of the four federal payment plans, which will forgive your student loan debt after 25 years. It is a good idea to think of these options if you are striving to make your student loan payments now.
The other issue is saving money while paying off your student loan debt. If paying your loans fast means you cannot save money in a bank for a bad day. It is quite a valid reason to think early repayment one more time. Everyone should have an emergency capital in case urgent needs, such as job loss, medical situations, etc.
The recommendation by the financial experts is that you should save three to six months of expense money every year. If all your money is going to pay off the student loan, you will not be able to build an emergency capital. However, if you have enough income to save a bit and still pay off student loan debts early, then it will not be a problem to finish your payments earlier.
The good news is that you have lots of options to pay off student loan debts faster, including making payments more than the minimum amount, consolidating or refinancing your student loans, applying for a student loan forgiveness programs, making an extra income by taking part-time job, cutting your budget in order to increase your payments, saving loans during university period.
Making more payments than the minimum amount
The minimum payment is the minimum amount of money you should pay each month. However, if you can pay more than the minimum payment, you can finish paying off your loan debts faster.
Don’t forget that interest rate is always accumulating on your principal balance. Paying any amount more than the monthly minimum can decrease the cost of your student loan.
To get the idea, let’s suppose your student loan debt is $100,000, at a 7% interest rate with a standard 10-year repayment period. If you pay $100 extra per month, you can save $4,696 in interest costs which means you pay off your student loan 1.08 years earlier. You may try to pay every two weeks instead of every month.
It doesn’t mean you have to pay every month, just because your student loan payment is a due month, you can make payments more often.
Consolidate or refinance student loan debts
One of the best solutions to pay off the student loan is consolidating your student debts. You can consolidate your student loan during the grace period right after your graduation. You should start searching for the financial institutions who are the potential lenders in the market. They can offer you the lowest interest rate to consolidate your Education Loans.
Apply to Forgiveness Programs to pay off student loan
Do you think you would be in a career where you serve others? If so, you might consider a career in public service – a job choice where you would eventually have your student loan forgiven. When it comes to choosing a job, some are better than others.
As an example, professions like teachers and nurses are often able to take advantage of special student loan forgiveness programs. The reason for this is both the US government and states want to attract candidates for in-demand jobs. Thus, they often have programs that would allow you to follow your dream career but without as much debt.
If you have a federal student loan and can get a public sector job, you could have a lot of your debt wiped away through the Public Service Student Loan Forgiveness (PSLF) program. You have to be a full-time public service employee for some segment of the government, a nonprofit organization or the military. It can include jobs in public school administration, law, and public health.
Volunteering in in return of erasing student loan debts
If you want to both pay off your student loan debts and see the world, you may join the Peace Corps. This will cancel up to 70% of your Perkins student loan debts. Unfortunately, the program is not so good when it comes to Stafford and consolidated loans. However, joining the Peace Corps will get you a full deferment on those loans for up to 27 months. On the bright side, this will give you a couple of years to fill out your resume.
If you would want assistance to pay off student loan debts but don’t want to travel halfway around the world, AmeriCorps and Vista could be options. Vista puts Volunteers into non-profit groups; AmeriCorps puts them in a variety of jobs from environmental cleanup to teaching school. If you do a one-year stint in one of these programs you could get a stipend of up to $7400 plus $4725 to pay off your loans.
Cut your budget, Save more money.
You should be able to find ways to save money, which you could then use to pay off student loan debts.
For example, if you put your mind to it, you should be able to cut your food costs by $50. Do you have a big cable bill? You should be able to reduce it substantially subscribing to Amazon Prime, Hulu and so forth.
Your life will change over time; you change your job, salary can go up and down, your relationship status, family size, financial windfall or financial emergency. So make sure you review your options when any of these events happen. Even if you don’t experience any life changes, it is essential to conduct a financial wellness check to make sure you are still on track to achieve your financial goals.