How Becky Ended Up With Nearly Six
When it came time to choose a college, Beckys parents encouraged her to choose an in-state college. To save money, they recommended she attend a community college for two years to get her Associates degree, then transfer to a local state university to complete her Bachelors.
However, Becky was determined to go to school farther away. And although her parents cautioned her about taking on too much student loan debt, they supported her decision.
Becky applied for federal student loans on her own. However, the federal government has caps on how much undergraduate borrowers can take out in Direct Subsidized and Subsidized Loans each year. Becky needed more money to pay for her education, so her parents applied for Parent PLUS Loans.
Parent PLUS Loans allow parents to borrow up to the total cost of attendance. Parent PLUS Loans are entirely in the parents names the student has no legal obligation to repay the loan. But in this situation, Becky agreed to repay those loans herself.
We came to an agreement where those loans were my responsibility, she said. The Parent PLUS Loans were almost twice the balance of the loans under my name, and they were also at a much higher interest rate.
Parent PLUS Loans tend to have the highest interest rate of any federal student loan. When Beckys parents took out those loans, the interest rates were as high as 7.9%, causing the loan balance to grow rapidly.
Pay Off Student Loans Quicker With These 11 Simple Tips
Paying off loans is a challenging task. Todays young people are not the only ones plagued by student loans. The debt is a nuisance for adults too. If you have taken on a student loan, you may want to get rid of it faster than the lender requires. There is no magic bullet, but there are things you could do to pay off your debt faster.
Consider Debt Repayment Assistance
If you cant afford to pay back your student loan, apply for repayment assistance. Repayment assistance will recalculate your minimum debt payment as a percentage of your income, or if you dont earn enough, payments may be suspended altogether. You could also consider getting in touch with a non-profit credit counseling company like Consolidated Credit to discuss how to manage your debt best, but be sure to do your due diligence.
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Consider Debt Consolidation Options But Understand The Consequences
If you are paying high interest on your student loan, consider consolidating or refinancing the loan. You might consider a student loan consolidation to take advantage of lower interest rates, or you might look into refinancing using a bank or credit union. Debt consolidating can help save you thousands in interest and clear off your debt sooner than expected.
However, please understand that by refinancing, you lose many of the consumer protections you have under a student loan, such as the right to defer your payments in cases of hardship or if you go back to school full time. If you miss payments, you could be sent to collections, sued, and have your wages garnished.
On the other hand, refinancing to a personal loan means that your debt is no longer protected in bankruptcy court. Because this is a legal protection student loan creditors enjoy, the refinancing lender will usually charge higher interest rates than those charged on government-guaranteed loans. While interest on most federal student loans is below 5% , refinancing to a personal loan could mean interest rates in the upper single-digit or even close to 20% annually.
Many such lenders might even advertise monthly interest rates to minimize the shock of their APRs. If, for example, you see a lender promoting a monthly interest rate of 1%, that equates to 12% annually. Likewise, 1.5% monthly equates to 18% ARP and 2% monthly equates to 24% APR.
What Are The Canada Student Loan Repayment Rules
Canada Student Loan program is in an unexpected limbo as the federal government temporarily suspended payments and interest charges during COVID-19. That suspension expired on September 30, so your loan will be due for repayment after that date.
But new graduates typically have an interest-free grace period of six months after they graduate. After this grace period ends, you begin making monthly payments on your loan. Most federal student loans are amortized over a 10-year term, or 9.5 years if you take your grace period into account.
There are two types of interest rates you can choose to repay your loan:
- Fixed rate: The interest rate will stay the same throughout your loan term. The fixed-rate for Canada student loans is the prime rate, plus 2%.
- Variable rate: Fluctuates and follows the prime rate. The prime rate is currently 2.45%, so choosing a variable rate will lower the overall interest you pay, but the downside is being more prone to fluctuations.
The good news: you can make extra payments on your student loans without penalty and shorten your overall loan term if you choose.
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Create A Payment Plan
You need to create a debt payment plan for your student loan debt, along with any credit card debt and car loans. Prioritize the debts based on the interest that you are paying and tax advantages. This means that you should usually put your federal student loans last, since they typically have a lower interest rate, while you work on paying off your private student loans faster. This plan can help you focus your efforts and make it easier to get out of debt.
Take A Job That Offers Forgiveness
Effectiveness level: Medium-High
Certain jobs, like public service work or teaching, may offer forgiveness for part or all of your student loans. All you have to do is meet the requirements to get your student loans forgiven. See our guides to Public Service Loan Forgiveness and teacher student loan forgiveness for more details.
There is one potential downside: You need to meet all the requirements and complete the full term of work required to get any forgiveness.
Since these forgiveness programs are typically used in conjunction with income-driven repayment plans, your payments will decrease but interest charges will accumulate. If you wind up ineligible for forgiveness for any reason, youll be stuck with greater interest charges.
In addition to these federal student loan forgiveness programs, some states also offer loan repayment assistance programs . These LRAPs also usually come with a work requirement. If you qualify, you could get money toward paying off your federal student loans.
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Pay Extra And Be Consistent
One thing that can slow down your student loan payoff is paying only the minimum due. Joshua Hastings, the founder of the personal finance blog Money Life Wax, was able to pay off $180,000 in student loans over a three-year period by taking a focused approach, which included paying extra on his loans every month.
If you’re able to pay extra, you may want to target one loan at a time while paying the minimum on everything else. The question is, do you use the debt snowball method or the debt avalanche?
“When deciding which student loan to pay off first, it’s best to go with the one that can free up cash flow quickly. That way you can have more money to throw at the next loan,” Hastings says. “As you grow your cash flow, it’s a good idea to transition to the high-interest loans.”
How To Pay Down Your Student Loans Faster
If you want to get out of student loan debt but arent ready to fully pay off your loan, you can do it by paying a little extra each month. Making extra payments, along with your regular monthly payments, may reduce the total amount you pay for your loan or help pay your student loan off faster.
You dont need to make an extra payment every single month to pay down your student loan fasterdo it whenever your budget allows. The easiest way to do this is to make a online, by phone, or by mail.
Paying extra will also reduce the Current Amount Due shown on your next billing statement. Even if theres no required amount due on the billing statement, continuing to make payments will reduce your Total Loan Cost.
Note: If youre enrolled in auto debit or have requested the pay-ahead feature for your loans to be turned off, the Current Amount Due will not be reduced in the following billing period.
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Consider Student Loan Refinancing
If you have private student loans, refinancing them with a different private lender could help you reduce your interest rate and make it easier to figure out how to pay off private student loans faster.
If you qualify based on your credit score and a few other eligibility factors, you can lower total borrowing costs and make it easier to pay your loan faster if you can qualify for a new loan at a lower rate. You can also choose a loan with a shorter repayment timeline if you want to be sure you’re paying off your loans as soon as possible.
Get A Side Job To Help Pay Off Student Loans
If your current job does not allow much scope for a higher income presently, you might be able to pay more of your loans by earning more money on the side. Selling old equipment, working part-time, or renting out your apartment for short periods of time are good ways to pay off student loans. By using a student loan payoff calculator, you can figure out just how much extra you should be making each month.
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Work For An Employer With Repayment Assistance
Employer student loan repayment assistance is growing in popularity as a workplace benefit. Employers who offer this benefit pay a certain amount of money towards employees student debt each month. Amounts vary, but typically employers offer around $100 to $300 monthly.
When you work for a company that offers this benefit, keep paying the minimums yourself and use the extra funds from your employer to pay down the balance more quickly.
Research Employer Student Loan Repayment Plans
Some employers offer student loan repayment plans as an employee benefit. This perk can save you money while also paying off your loans faster.
These plans take several forms, according to SHRM. For instance, employers may make monthly payments to the loan servicer in employee-assisted repayment plans. Other employers may make matching contributions, similar to a 401 match. Finally, some employers may let their employees choose between a student loan contribution or retirement contribution.
Only a small number of companies offer these benefits. Borrowers on the job market can research employee benefits and ask about student loan repayment plans.
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Consolidate To A Federal Direct Loan
The first thing you should do is to consolidate your federal student loans into a federal Direct Consolidation Loan. Most recent loans should already be through the Direct Loan program, but if you started classes several years ago, you may have loans at different banks. Consolidating your loans may qualify you for student loan forgiveness programs and make it easier to pay one monthly payment. It will also give you the opportunity to lower your monthly payment and extend the term of the loan. This may be crucial if you are not making as much as you originally expected during the first few years of working.
Look For Interest Rate Discounts
Though federal student loans have fixed interest rates, you may be able to save some money by setting up automatic payments on both federal and private loans. For many lenders, autopay reduces the risk that youll miss payments, so this risk reduction is passed onto you with a discounted interest rate.
Most federal loan servicers offer a .25%-.50% interest rate reduction as long as your autopay plan is active. Private student loans may have similar benefits and perhaps offer more of a discount since there can be more room to negotiate with a private loan.
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Student Loans: Next Steps
Student loan forgiveness carries multiple political benefits and risks. Ultimately, Biden will decide by August whether to enact wide-scale student loan forgiveness and extend the student loan payment pause. Borrowers hope to avoid a nightmare scenario of no student loan cancellation and a restart of student loan payments. Importantly, no matter what Biden decides, you should have a game plan for student loan repayment. For example, you may not qualify for student loan forgiveness or only a portion of your student loans could be forgiven. Similarly, an extension of the student loan payment pause likely is temporary, meaning student loan repayment would still be required. Learning all your options to pay off student loans is your best investment. Here are some top ways to pay student loans and save money:
Student Loan Repayment Plans
When you start making repayments, you might have a choice between several different repayment plans. These can include monthly repayments that stay the same throughout the life of your loan, or repayments that better fit an earning curve as you start your career.
Generally, federal loans come with more flexible options, including several based on your income. Private student loans typically come with fixed repayments over five to 20 years regardless of how much you earn.
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Strategies To Help You Pay Down Student Loans Faster
Paying back student loans is a lot of work and especially difficult if youre living paycheck-to-paycheck. Right now, the average 2016 grad holds $37,172 in student loan debt, which continues the trend of increased debt per borrower every year: Here are some suggestions for helping you manage student loans:
Make Extra Payments The Right Way
Theres never any penalty for paying off student loans early or paying more than the minimum. But there is a caveat with prepayment: Student loan servicers, which collect your bill, may apply the extra amount to the next months payment.
That advances your due date, but it wont help you pay off student loans faster. Instead, instruct your servicer either online, by phone or by mail to apply overpayments to your current balance, and to keep next months due date as planned.
You can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Either can save you a lot of money.
For example, lets say you owe $10,000 with a 4.5% interest rate. By paying an extra $100 every month, youd be debt-free more than five years ahead of schedule, if you were on a 10-year repayment plan.
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Make Interest Payments In School
Interest is a major reason borrowers pay down their loans only to watch the balance barely change. But you can pay off loans faster and save money by making interest payments while still in school.
Most student loans begin accruing interest long before borrowers begin making payments. Other than Direct Subsidized Loans offered by the federal government, borrowers will see interest accumulate while enrolled.
How much of a difference can that make? If you borrow $27,000 in unsubsidized loans while in college, you’ll add around $3,400 in interest to the loan by the time your first monthly bill shows up.
Private loans with higher interest rates can rack up even more debt. On a $33,000 loan with 9% interest, borrowers will add more than $9,000 to their balance in interest six months after graduation.
Paying down the interest while in school means paying off the loan faster. When it comes to financing your education, prioritizing subsidized loans can also make it easier to repay loans down the road.
Pay More Than The Minimum Amount
If you have the capacity, increasing the amount of your monthly payments will help you get out of debt faster. Whats more, the amount you pay above the minimum payment will go toward paying off the principal of the loan. Even better, this will help to reduce your balance and thus reduce the amount of interest you will have to pay.
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Use Extra Cash To Make Lump Sum Payments
A LendEDU survey found that over half of student borrowers who are able to pay off their student loans in one to five years made at least one lump sum payment of at least $5,000, making this one of the best strategies for paying off student loans fast.
When you come into some extra money for example from a tax refund, dont spend the cash. Instead, put the funds towards paying off your student debt with extra payments or a larger payment. This will reduce the principal balance you owe, so it will reduce your interest and the outstanding amount you have to pay back.
Make Extra Payments Whenever You Can
Effectiveness: Medium
In addition to paying more on your monthly bill, think about making extra payments. This can be particularly easy if you find yourself with extra cash.
- Grandma sent you a check for your birthday? Put it toward your loans.
- Got a one-time bonus at work for a job well done? Put it toward your loans.
- Tax refund? Put it toward your loans.
Spending that money on your loans now will pay off down the road when youve paid less in interest and therefore have more money to spend how you wish.
Tip:
You can use this student loan refinancing calculator to estimate how much you could save.
Step 1. Enter your loan balance
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