Lori Meadows
Paying off student loans can be a stressful and burdensome experience. However, there are a number of strategies that can help you pay off your student loans faster and save you money in the long run. It is important to know what you owe, including whether your loans are private or federal, the monthly payment and due date, the current and principal balances, the interest rates, and the servicer. This article will explore strategies for paying off student loans, including making extra payments, refinancing, and taking advantage of loan forgiveness programs.
| Characteristics | Values |
|---|---|
| Paying off student loans early | Limit the amount of interest paid over the life of the loan |
| Interest on federal student loans | Accrues or builds up on a daily basis |
| Reducing overall interest | Pay more than the minimum each month |
| Federal student loan forgiveness | Loan forgiveness and repayment programs for teachers, public servants, members of the United States Armed Forces, and more |
| Delinquent private student loans | Reported after 30 days without payment |
| Delinquent federal loans (Direct and FFEL) owned by ED | Reported after 90 days of no payment |
| Default on federal loans | Occurs after 270 days or 9 months |
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What You'll Learn
Pay more than the minimum each month
Paying more than the minimum each month is a great way to pay off your student loan faster. The more you pay towards your loans, the less interest you'll owe overall, and the quicker the balance will be cleared.
If you can, pay a little extra each month. You can request that this extra amount is applied to the principal amount. This will help to reduce your overall debt. You can also pay earlier in the monthly cycle, which will reduce the principal amount and the interest accrued for that month.
If you receive a bonus at work, an inheritance, or an unexpected tax return, consider using this money to pay off your student loan. Some people also use pay raises to pay down their student loans more quickly.
You can also make interest-only payments while you're still in school to reduce your overall student loan debt.
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Pay earlier in the monthly cycle
Paying off your student loan early in the monthly cycle can help you save money on interest. The earlier you pay, the less interest you'll owe, and the quicker the balance will disappear. Federal student loans include a grace period during which you're not required to begin repayment for a certain period after graduation. For example, the grace period for Federal Stafford Loans is six months, and for Federal Perkins Loans, it's nine months. If you start paying off your loan before this grace period ends, you can prevent interest from accruing or building up on a daily basis.
You can also pay a little extra each month than you're required to. Just make sure to note that you want it applied to the principal. If you have multiple loans with different interest rates, pay off the higher-interest loans first.
If you come into some money, perhaps through tax returns or a cash gift, consider putting it toward your student loan repayment. However, make sure you have enough savings for emergencies and other financial goals before paying off your student loan early. It's also important to prioritize eliminating other debt with higher interest rates, such as credit card debt, which typically has a much higher interest rate than student loans.
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Make interest-only payments while in school
Making interest-only payments on your student loan while still in school can save you hundreds or even thousands of dollars. Interest capitalization is a process in which your student loan servicer adds the accrued interest to the principal amount of your loan. The longer you're in school and the more debt you accumulate, the more it'll cost you. Therefore, making interest-only payments before you graduate can help you keep your costs down.
If you have private student loans, you may be able to set up a specific payment plan to make interest-only payments. In fact, some lenders may require it for certain loan programs. Contact your lender directly to get the details you need to make it happen. If you have federal student loans, there's no specific interest-only plan you can choose while you're in school. However, you can contact your servicer to find out how much interest is accruing each month and set up automatic payments to cover that amount.
If you don't have subsidized federal student loans, interest will accrue on your loans while you're in school. If you don't pay this interest, your student loan servicer will capitalize the interest once you're out of school and your six-month grace period is over. On the other hand, if you have subsidized federal student loans, the federal government pays the interest while you're in school at least half-time, during your six-month grace period, and during future deferment periods.
To determine whether you should make interest-only payments while in school, consider your work situation and that of your parents. If working to pay interest will prevent you from meeting your educational goals, it may not be worth it. However, if you or your parents are able to work to cover the interest, you can save money in the long run.
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Use your tax refund
If you have federal student loans, you should be aware that they are considered to be in default after 270 days of non-payment. In such cases, your federal tax refund could be seized to repay some of your student debt. If your federal loans are in default, the government can withhold your tax refund and apply it toward repayment. This process is called garnishment. The official name for this process is the Treasury Offset Program (TOP), which is part of the U.S. Treasury Department. TOP is tasked with taking federal payments to cover delinquent debts owed to government agencies, including defaulted student loans.
If you're at risk of having your refund garnished, the federal government will notify you 65 days before the offset starts. This notice will include instructions for contesting the offset. You may be able to do so if:
- You didn't borrow the loans cited in the notice.
- You're currently in bankruptcy.
- You've already paid the debt or are not actually in default.
- You are currently disabled.
If you've experienced and can prove financial hardship, you could be eligible for a student loan offset hardship refund. If you qualify, any money withheld from your tax return will be refunded to you.
On the other hand, private student loans cannot take your tax refund unless a court order grants the lender permission to garnish your wages.
Borrowers who are able to make payments toward their loans can take advantage of a federal tax deduction of up to $2,500 on their tax return. To benefit from this, borrowers should make sure they receive a 1098-E, or a student loan interest statement, from their lender.
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Explore loan forgiveness programs
Loan forgiveness programs can be a great way to reduce your student loan debt, and in some cases, you may even have your entire remaining loan balance forgiven. These programs are often designed for people working in specific public service sectors, such as healthcare, education, or non-profit work. Here are some of the loan forgiveness programs you can explore:
Public Service Loan Forgiveness (PSLF)
The PSLF program is designed for people working in public service, including government, military, state, local, or tribal services, as well as certain non-profit organizations. Qualifying federal student loans can be forgiven after 120 qualifying payments (10 years) while working for a qualifying public service employer.
Teacher Loan Forgiveness Program
This program offers up to $17,500 in loan forgiveness for teachers who teach full-time for five complete and consecutive academic years in certain low-income elementary or secondary schools or educational service agencies. Teachers of specific subjects, such as mathematics or science, may be eligible for the full $17,500, while teachers of other subjects may qualify for $5,000 in forgiveness.
Income-Driven Repayment (IDR) Plans
IDR plans are beneficial for borrowers who cannot afford their payments under a standard repayment plan. These plans base your monthly payment on your family size and income, and you may qualify for a much lower monthly payment. Depending on the plan, your repayment term may be 20 or 25 years, and if you still have a balance at the end of this period, the remaining amount is forgiven.
AmeriCorps Education Award
If you participate in an approved AmeriCorps program, such as AmeriCorps VISTA or AmeriCorps NCCC, you are eligible to receive the Segal AmeriCorps Education Award upon completion of your service. This award can be used to repay qualified student loans.
Perkins Loan Cancellation
The Perkins loan cancellation program provides forgiveness on an ongoing basis based on years of qualifying service. This program may be suitable if you are seeking forgiveness for private student loans, as it is one of the few programs that cater to private loans.
Remember that each forgiveness program has its own specific requirements and eligibility criteria, so be sure to review the details carefully before applying. Additionally, most of these programs are only applicable to federal student loans, not private ones.
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Frequently asked questions
Paying off your student loan with cash is a simple process. You can pay off your student loan with cash by depositing the money into your account and then paying the loan through your bank's online platform. You can also pay off your student loan with cash by going to your bank and making a payment in person.
There are several ways to pay off your student loan faster. Firstly, paying more than the minimum each month will help you pay off your loan faster and reduce the amount of interest you owe. You can also pay off your loan faster by refinancing to save on interest on private loans. Additionally, you can make extra payments with any unexpected or bonus earnings, such as an inheritance, work bonuses, or a tax refund.
If you miss a student loan payment, your loan will eventually enter default. For most federal loans, this occurs after 270 days, although loans are not reported to be in default until they reach 360 days of delinquency and are sent to collections. Defaulting on a federal student loan can have additional consequences, such as losing eligibility for federal student aid and facing garnishment of federal tax returns, wages, and Social Security payments.
