Paying Off Student Loans While In University: A Smart Move?

Paying off student loans while still in university can be a great way to save money, build credit, and get ahead of your debt. However, it can be challenging to afford these payments while also covering living expenses. Federal loans don't require payments until six months after graduation, so students with these loans will need to be proactive in paying off their debt while studying. In contrast, some private student loans require payments while the borrower is still in school. Regardless of loan type, it's beneficial to research loan types and create a budget to get a head start on repayments.

Saving money and reducing debt

• Create a clear savings plan: Develop a weekly budget that outlines how much you can spend on rent, bills, food, and transportation. Consider using a budgeting app or spreadsheet to track your expenses.
• Identify and reduce your biggest costs: Compare prices for essential services like broadband, energy providers, and mobile phone plans. Look for student discounts and negotiate with providers to get the best deals.
• Calculate the lifetime cost of your student loan: Understand the interest rates, repayment plans, and loan forgiveness options associated with your student loan. Consider speaking to a financial advisor to determine if early repayment is a viable option for you.
• Shop smart: Take advantage of student discounts, buy second-hand or used items, and compare prices online to find the best deals.
• Cut down on eating out: Cooking at home and packing meals can significantly reduce your food expenses. Plan your meals, buy groceries in bulk, and avoid shopping while hungry to save money.
• Limit unnecessary expenses: Avoid impulse purchases, vice expenses like smoking or drinking, and unnecessary school supplies. Set savings goals and distinguish between needs and wants.
• Utilize public transportation or ride-sharing apps: Instead of owning a car, opt for walking, biking, or using public transportation to save on vehicle maintenance and fuel costs.
• Split costs with roommates: Sharing accommodation and utility costs with roommates can significantly reduce your monthly expenses.
• Choose affordable entertainment options: Opt for streaming services instead of expensive cable packages. Take advantage of free or discounted events and activities on campus, such as movie nights, social events, or gym memberships.
• Sell unwanted items: Declutter your belongings and sell any items you no longer need, such as clothing, furniture, or electronics, to earn some extra cash.
• Avoid unnecessary loans: Only take out loans for your education, and be cautious of high-interest loans or credit card debt.

Understanding interest

Yes, you can pay off your student loans while still at university. In fact, it is recommended to make payments on them while in school to lower the principal amount. However, it is generally better to avoid borrowing in the first place. So, if you have the funds, consider saving them to pay for your upcoming semester's expenses, thereby reducing the amount you will need to borrow in new loans.

Interest is a cost you pay for borrowing money. It is essentially the cost of your loan, accrued daily, and is calculated as a percentage of the amount you borrow. Interest begins to accrue after your loan is issued, and borrowers can expect to pay more than they originally borrowed.

The interest rate is the percentage of your loan amount that you will pay as interest over a year. For example, if you borrow $10,000 at an annual interest rate of 3.65%, you will pay $365 in interest over the year. This daily interest rate of 0.01% ($365 divided by 365 days) means you will accrue $1 in interest each day.

Interest can be subsidised or unsubsidised. With subsidised interest, the government or lender pays your interest while your loans are in a deferred status, for example, while you are still enrolled at school. Unsubsidised interest means you are responsible for paying the interest that accrues during this time.

If you have a loan with unsubsidised interest, you can choose to make interest-only payments while at university. This will prevent your interest from being added to your principal loan amount, which will increase the total amount you will need to pay back.

If you are able to make payments while still at university, you can save money in the long run by reducing the amount of interest that accrues.

Creating a budget

Yes, you can pay off your student loans while still in university. In fact, it is recommended to start paying them off early if you can afford to. This will save you money in the long run, as student loans accrue interest daily, which can see you paying more than the original amount borrowed.

Step 1: Understand Your Loans

First, you need to get a clear picture of your loans. Make a list or a spreadsheet detailing the following:

• The name of the loan, i.e., whether it is federal or private student loan debt, a car loan, or credit card debt.
• The monthly due date for the payment.
• The total principal balance left.
• The number of years and months until the payoff date.

Add up all your monthly payments and your total outstanding debt. You can find this information by logging into your account for your federal student loan servicer or private student loan lender.

Step 2: List Your Income

Next, you need to list any money you usually make each month. This includes regular paychecks, estimated commission, side hustles, freelance work, child support, etc. If your income is irregular, take the lowest amount you've made in recent months and use that as your planned income budget line. You can always adjust this later if you make more.

Step 3: List Your Expenses

Now, list your expenses, starting with the essentials. These include:

• Giving/donations (recommended 10% of your income)
• Emergency fund savings
• Food, utilities, housing, and transportation

Then, list all other monthly expenses, including insurance, childcare, subscriptions, and other debts. Add all your debts as individual budget lines, from smallest to largest, so you can ensure you can at least pay the minimum payments.

Step 4: Subtract Expenses from Income

Your income minus your expenses should equal zero. This is called a zero-based budget. This doesn't mean you let your bank account drop to zero, but rather that you give every dollar a job, whether it's for giving, saving, spending, or paying off loans. Any leftover money should go towards your emergency fund or your smallest debt.

Step 5: Find Areas to Cut Back

If your expenses exceed your income, you'll need to cut back. Look for non-essential expenses that you can reduce or cut out, such as dining out, entertainment, or streaming services. You could also consider taking on extra hours at work or starting a side hustle.

Step 6: Track Your Expenses

Finally, stick to your budget by tracking your transactions. You can do this manually or by using a budgeting app. This will help you stay on top of your spending and feel more in control of your finances.

Additional Tips:

• Set up direct debit for your student loan payments to save on interest.
• Make extra payments whenever possible to reduce your interest and pay off your loans faster.
• Consider using a debt repayment strategy like the snowball or avalanche method to help you prioritize paying off debts.
• Take advantage of loan repayment assistance programs, loan forgiveness options, and hardship programs if you need help making payments.
• If you have high-interest credit card debt, focus on paying this off first while paying the minimum due on your student loans.
• Refinancing or consolidating your student loans can help you get a lower interest rate, simplify repayment, or keep you eligible for federal loan benefits.

Payment methods

In-school payments

Although you are not required to make payments while still in school, it is possible to do so. Making payments during your grace period or while still in school will help you pay off your loan faster and save money. Even if you can only afford to pay the interest accruing each month, this will help to lower your principal amount.

Automatic/autopay

You can sign up for automatic debit, which will see your student loan servicer automatically deduct your student loan payment from your bank account each month. This will help you to avoid missing payments and, in some cases, can reduce your interest rate by 0.25%.

Extra payments

Paying a little extra each month can reduce the interest you pay and the total cost of your loan over time. If you can, continue to make monthly payments even if you’ve satisfied future payments. Ask your servicer if the additional payment amount can be allocated to your higher-interest loans first.

Loan forgiveness

There are a number of situations in which you can have your federal student loan balance forgiven. There are loan forgiveness and repayment programs for teachers, public servants, members of the military, and more.

Biweekly payments

Instead of making one full monthly student loan payment, you can pay half your bill every two weeks. This will allow you to make an extra payment each year, reducing the time and interest costs of your loan.

Refinancing

If you have good credit, a steady job, and private loans, refinancing can help you pay off student loans faster without making extra payments. This process replaces multiple federal or private student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that is shorter than your current loan term.

'Found' money

If you get a raise, a student loan refinance bonus, or another financial windfall, try to allocate at least a portion of it to your student loans. You can also ask your employer if they offer a student loan repayment program as an employee benefit.

Avoiding debt

Start working and start saving

The best way to avoid debt is to start working and saving early. Although tuition prices can be high, paying for even half of your tuition will make a huge difference. The sooner you start earning money and financing your schooling, the less dependent you are on banks and loans.

Focus on academic excellence

Applying yourself to your studies in high school can help you excel in your courses and become eligible for scholarships and grants. These can sometimes fund your entire tuition and, unlike loans, do not have to be paid back.

Apply for scholarships and grants

Every college or university has its own scholarships and grants that students can apply for. There are also external programs offered to students, such as International Student, which offers an online search for international students to find scholarships.

Choose an affordable college

There are tuition-free universities, such as the University of the People, which is an entirely online and accredited college. Countries in Europe, like Germany and France, also offer free university tuition.

Apply for financial aid

Every country has its own government student aid program aimed at helping with tuition costs, the cost of living, books, and more. For example, in America, you can apply using FAFSA, and in the UK, you can apply for student finance services.

Work part-time while studying

If you're studying part-time, working part-time is the best way to fund your schooling. If you're studying full-time, consider working full-time in the summers or on occasional evenings. There are also remote jobs that can help you earn extra income without being too demanding.

Budget and be cost-effective

Make cost-effective choices to save more money. This could include buying used textbooks or finding free alternatives. Live with roommates to cut rental costs and cook at home as much as possible.

Pay in instalments

Most colleges offer interest-free instalment plans that might only have a small fee. Choosing to pay in instalments can help you avoid debt.

Turn to your community

You can turn to your family, friends, and others for help in funding your education. Crowdfunding is becoming a more popular way for students to raise money for their education.

Employer tuition reimbursement

Some companies are willing to pay all or part of an employee's tuition. This builds loyalty and longevity in the company and is beneficial for the employee as they don't have to pay for tuition.

Avoid private loans

Private loans usually have strict forbearance policies and higher interest rates than federal loans. Federal loans are a better option as they have fixed interest rates.

Frequently asked questions