Lori Meadows
Student loans can be a burden, but there are several ways to pay them off faster and save money in the long run. Understanding the unique traits of student loans can help you make more informed financial decisions. For example, interest accrues daily, starting on the day the loans are disbursed, so delaying or lowering payments will increase the amount you owe. However, there are strategies to reduce the interest you pay, such as signing up for automatic debit payments, which can also help ensure you make payments on time. Additionally, refinancing student loans can help you secure a lower interest rate and speed up repayment. This guide will explore these and other strategies to help you find the money to pay off your student loans efficiently and effectively.
| Characteristics | Values |
|---|---|
| Lower interest rate | Sign up for autopay and automatic debit to lower your interest rate |
| Repayment plan | Make bi-weekly payments, refinance to a shorter term, or make extra payments |
| Loan forgiveness | Explore loan forgiveness and repayment programs for teachers, public servants, and members of the military |
| Employer benefits | Ask your employer if they offer student loan repayment assistance |
| Side hustle | Increase your income by freelancing, consulting, or renting out your assets |
| Delinquency | Avoid missing payments to prevent delinquency and default, which can negatively impact your credit score |
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What You'll Learn
Explore loan forgiveness and repayment programs
Loan forgiveness and repayment programs can be a great way to reduce your student loan debt. These programs are designed to help borrowers with lower incomes, large amounts of debt, or specific types of employment. Here are some key strategies to explore:
Income-Driven Repayment Plans (IDR):
IDR plans are offered by the federal government and are open to most borrowers with federal student loans. These plans base your monthly payment on your income and family size, allowing you to make payments that are affordable for your financial situation. Your monthly payments can be as low as $0, and any remaining loan balance may be eligible for forgiveness after 20 or 25 years, depending on the plan. You can apply for an IDR plan online at StudentAid.gov/IDR or contact your student loan servicer for guidance.
Public Service Loan Forgiveness (PSLF):
PSLF is available to government and qualifying nonprofit employees with federal student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free after making 120 qualifying loan payments on an IDR plan and 10 years of full-time public service work. Nurses, for example, often qualify for PSLF. You can use the government's PSLF Help Tool to determine your eligibility.
Teacher Loan Forgiveness:
If you teach full-time for five consecutive academic years in certain low-income schools or educational service agencies, you may be eligible for Teacher Loan Forgiveness. This program offers forgiveness of up to $17,500 of your student loan debt. Keep in mind that you cannot receive benefits under both the Teacher Loan Forgiveness Program and PSLF for the same period of teaching service.
AmeriCorps Service:
Completing a term of national service with AmeriCorps can make you eligible for the Segal AmeriCorps Education Award, which can be used to repay your student loans. Additionally, your AmeriCorps service can count toward PSLF.
Loan Discharge Programs:
In extreme situations, such as a permanent disability or school closure, you may qualify for loan discharge. This differs from loan forgiveness as it typically involves a refund for past payments, while forgiveness only applies to remaining debt.
Employer-Provided Repayment Programs:
Some employers offer student loan repayment programs as an employee benefit. It's worth checking with your employer or human resources department to see if this is an option for you.
Remember to carefully review the eligibility requirements and terms of each program to determine which ones best fit your circumstances. By taking advantage of these loan forgiveness and repayment programs, you can make significant progress in managing and reducing your student loan debt.
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Make bi-weekly payments
Making bi-weekly payments is a powerful technique to pay off your student loans faster and save a significant amount of interest. Here's how it works:
First, divide your monthly payment in half and pay that amount every two weeks. For example, if your monthly payment is $500, you would make bi-weekly payments of $250. This simple strategy will help you make one extra payment each year, shaving time off your repayment schedule and reducing your interest costs.
To illustrate, consider a $30,000 student loan with a 7% interest rate and a standard 10-year repayment period. If you make monthly payments of $348, it will take the full 10 years to repay, and you'll pay a total of $4,176 in interest. However, by switching to bi-weekly payments of $174 every two weeks, you will be debt-free 13 months sooner and save $1,422 in interest, paying a total of $4,524 per year.
While this strategy is effective, it's important to note that lenders are usually not structured to accommodate automatic bi-weekly payments. You may need to set reminders to make manual half-payments every two weeks, ensuring that both bi-weekly payments arrive before the monthly due date for each loan. Additionally, by opting for manual bi-weekly payments, you may lose the small discount some lenders offer for setting up monthly auto-payments.
If you receive your salary on a bi-weekly basis, you can time your loan payments to coincide with your paychecks. This ensures that the money is in your bank account when your bi-weekly payment is deducted. Keep in mind that there will be two months each year when you receive three paychecks, so you'll also make three loan payments during those months.
Bi-weekly payments are a great way to accelerate your student loan repayment and save on interest costs. However, if you find this strategy too cumbersome, you can also explore other options, such as refinancing your student loans or making extra payments whenever possible.
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Refinance your loan
Refinancing student loans can be a good way to pay off your debt faster and save money on interest. This process replaces multiple federal or private student loans with a single private loan, ideally with a lower interest rate. You can refinance both federal and private loans, and it doesn't have to cost anything to refinance.
If you have federal student loans, refinancing to a private loan means losing access to benefits such as income-driven repayment plans and loan forgiveness. Therefore, if you decide to refinance federal loans, you should be confident that your personal finances are stable. On the other hand, if you have private student loans, refinancing could be a good option if you can secure a lower interest rate, especially if you have good credit and a stable income.
To speed up repayment, choose a new loan term that is shorter than what's left on your current loans. While this may increase your monthly payments, it will help you pay off the debt faster and save you money in interest. For example, refinancing a $50,000 student loan with an 8.5% interest rate and a 10-year term to 6% interest on a seven-year term would save you roughly $13,000, although your monthly payment would increase by about $110.
You can use a student loan refinance calculator to estimate your savings. When refinancing, a private lender will pay off your existing loans, and you will then make monthly payments to this new lender. To qualify for refinancing, you will typically need a credit score of at least in the high 600s, although many refinance lenders seek borrowers with scores in the mid-700s. You will also need enough income to cover your expenses, student loan payments, and other debts.
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Start a side hustle
Starting a side hustle can be an effective way to pay off student loans faster, as it provides extra income to put toward your debt. Here are some things to consider when starting a side hustle:
Find Something That Fits Your Schedule and Lifestyle
A side hustle requires extra work, so it's important to choose something that aligns with your existing skills, interests, and schedule. Consider your expertise, what you enjoy doing, and the time you can devote to your side hustle. This will help you stay motivated and make a more significant impact on your student loan repayment.
Set Clear and Specific Goals
Define clear and specific goals for your side hustle earnings. Instead of a vague goal like "earning more to pay off debt," set a specific target, such as earning an extra $500 per month after taxes to pay off your student loans faster. This will help you stay focused and measure your progress.
Explore Different Side Hustle Ideas
There are numerous side hustle opportunities available, and you can choose one that suits your skills and interests. Some popular options include delivery services like Uber or Doordash, reselling collectibles or items online, freelance work such as writing or graphic design, starting a blog, or leveraging your sports skills to coach others.
Stay Disciplined and Motivated
Staying disciplined is crucial to the success of your side hustle. Remember your goal of paying off student loans, and consider automatically applying your side hustle earnings toward your debt to stay focused. Remind yourself of the financial freedom and reduced stress that will come with making progress on your loan repayment.
Be Mindful of Taxes and Overhead Costs
Remember that your side hustle earnings may impact your taxes, especially if it turns into a profitable business. Additionally, consider any overhead costs associated with your side hustle, such as gas expenses for delivery services or website hosting fees for online ventures. Ensure that you understand the financial implications of your side hustle to make informed decisions.
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Dedicate your tax refund to your loan
If your federal student loans are in default, the government can withhold your tax refund and use it toward repayment. This is known as a tax refund seizure or tax garnishment. The U.S. Department of Education (ED) announced a one-time temporary program that offers benefits to borrowers with federally-owned student loans who fall behind on their payments between October 1, 2023, and September 30, 2024. Under this program, missed monthly payments on your federally-owned student loans will not be reported to credit reporting companies, placed in default, or referred to debt collection agencies.
If your tax refund is subject to garnishment, you will receive a letter from your loan holder stating that your account has been referred to the Treasury Offset Program (TOP). TOP is the part of the U.S. Treasury Department responsible for taking federal payments to cover delinquent debts owed to government agencies, including defaulted student loans. Your student loan holder will send you a tax offset notice before your refund is seized. This notice typically arrives months before you file your tax return, so you have time to take action. However, you might only receive this notice once, and you cannot dispute tax garnishment on the grounds of not receiving the offset notice.
If you have already fully repaid the debt, you should receive your entire refund. If the amount listed on your offset notice is incorrect, you can dispute it by providing copies of checks, money orders, or receipts for payments made to your student loan holder. If you do not owe the debt, your student loan can be discharged for reasons such as bankruptcy, total and permanent disability, or school fraud. In this case, you will need to provide copies of completed loan discharge applications or court documents and discharge orders to your student loan holder.
If you are married and file your taxes jointly, you can protect your spouse's portion of the federal tax refund from being garnished by submitting an injured spouse form (IRS Form 8379). Being in default can negatively impact your credit score and cost you extra money over the lifetime of your loan. To avoid default, you can consider income-driven repayment plans, consolidation, or forbearance. If you have been paying back your student loans, you may qualify for a federal tax deduction of up to $2,500. To qualify, make sure you receive a 1098-E, or a student loan interest statement, from your lender and include it in your tax filing.
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Frequently asked questions
You can sign up for autopay to lower your interest rate and have more of your money going towards your principal balance.
You can pay a little extra each month to reduce the interest you pay over time. You can also consider refinancing your student loans to get a lower interest rate.
Refinancing is when you replace multiple federal or private student loans with a single private loan, ideally at a lower interest rate.
You can start a side hustle or sell items that you no longer need. You can also rent out your spare room, parking spot, or car.
Yes, there are loan forgiveness and repayment programs for teachers, public servants, members of the United States Armed Forces, and more. You can also check if your employer offers repayment assistance.
