Savanna Hoffman
Student loan debt is a growing crisis, with the average borrower in the US owing more than $37,000. Fortunately, there are several ways to raise money to pay off student loans, including grants, scholarships, loan repayment programs, and crowdfunding. Grants and scholarships can be need-based or merit-based, and are usually awarded to current students, but can also be used to pay down student loan debt. Loan repayment programs are often offered by employers as an educational assistance benefit, or by national agencies in exchange for community service or work in specific fields. Crowdfunding involves raising small amounts of money from a large number of people, usually online, and can be a viable solution for paying off student loans, although success varies based on network size and donor generosity.
| Characteristics | Values |
|---|---|
| Grants | Free money for school that you don't have to pay back. Need-based grants can be used to pay off student loans. |
| Tax refund | Dedicate your tax refund to paying off some of your student loan debt. |
| Loan forgiveness programs | For teachers, public servants, members of the US Armed Forces, government or nonprofit workers, etc. |
| Employer repayment assistance | Research whether your employer offers repayment assistance for employees with student loans. |
| Refinancing | Replacing multiple federal or private student loans with a single private loan, ideally at a lower interest rate, can help pay off student loans faster. |
| Extra payments | Making extra payments can help pay off student loans faster. |
| Lump-sum interest payments | Making a lump-sum interest payment before your student loan grace period ends can save money. |
| Crowdfunding | A popular way for students to raise money to pay off debt. |
| Charities | Some charities may negotiate with lenders to reduce interest rates or waive late payment penalties. |
| Investments | Even with student loan debt, investing small amounts can build good habits and provide a foundation for the future. |
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What You'll Learn
Grants and loan forgiveness programs
Grants
- Career-based grants: These are national grants awarded by the government, educational institutions, hospitals, or businesses to individuals in specific careers, such as teaching or medicine.
- National Health Services Corps Grants: These grants are designed to assist medical professionals in repaying their student loans. For instance, the Nurse Corps Loan Repayment Program offers to pay off 60% of student loan debt for nurses who work in critical shortage areas for at least two years.
Loan Forgiveness Programs
- Teacher Loan Forgiveness Program (TLF): This program offers student loan forgiveness of up to $17,500 for teachers working in high-needs subjects or low-income schools.
- Public Service Loan Forgiveness (PSLF): This program is available for those working full-time for a government or not-for-profit organization and may result in the forgiveness of the entire remaining balance of Direct Loans.
- Department of Justice Attorney Student Loan Repayment Program: Attorneys with at least $10,000 in federal student loan debt who work for the Department of Justice may receive up to $6,000 per year, up to a total of $60,000, to repay their student loans.
- AmeriCorps: Volunteers serving with AmeriCorps may qualify for federal student loan forbearance during their service term, and upon completion of their service, they become eligible for the Segal AmeriCorps Education Award, which can be used to repay qualified student loans.
- John R. Justice Student Loan Repayment Program: State prosecutors and public defenders can apply for this program through their state and receive up to $10,000 per year, with a maximum award of $60,000, to repay law school student loans.
- National Institutes of Health (NIH) Loan Repayment Programs: These programs are open to individuals in various health industries, even if they are not employed by the NIH. Participants can receive up to $50,000 per year for a total of two years if they conduct critical research as defined by the NIH.
It is important to note that eligibility requirements and application processes may vary for each program, so be sure to review the specific guidelines before applying. Additionally, some programs may have limitations or restrictions on the amount of loan forgiveness offered.
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Refinancing
When considering refinancing, it is important to evaluate the benefits of your current loans. Some loans come with perks like autopay discounts or loyalty rewards that you may lose if you refinance. Additionally, if you refinance federal loans into private loans, you will lose benefits associated with federal loans, such as federal Income-driven Repayment Plans, Economic Hardship Deferment, and Public Service Loan Forgiveness.
If you decide to refinance, you can compare refinancing options from different lenders to find the best interest rate and the right fit for you. You may qualify for a lower rate if your credit and income have improved since you borrowed. To increase your chances of approval or secure better terms, you can choose to apply with a cosigner.
To speed up repayment, choose a new loan term that is shorter than what's left on your current loans. While opting for a shorter term may increase your monthly payment, it could help you pay off the debt faster and save money on 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, but your monthly payment would increase by about $110.
It is important to note that refinancing is not the best choice for everyone. Consider your financial situation and seek out the best student loan refinance companies to ensure you make the right decision for your circumstances.
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Making extra payments
Extra Payments
Interest-Only Payments
If your loans are accruing interest while you're still in school or during your grace period, consider making interest-only payments during this time. This will help you avoid capitalization, which occurs when interest is added to your principal loan amount, increasing the total amount you pay over time. You can also make a lump-sum interest payment before your grace period ends to reduce the overall interest accrued.
Tax Refunds
Dedicating your tax refund to paying off a portion of your student loan debt is a smart way to make extra payments. You may have received a tax refund due to a tax deduction for paying student loan interest, so using that money to directly pay down your loan can be an efficient strategy.
Refinancing
Refinancing your student loans can help you pay them off faster without necessarily making extra payments. Refinancing involves replacing multiple federal or private student loans with a single private loan, ideally at a lower interest rate. Opting for a shorter loan term can help you pay off the debt faster and save on interest, but it will likely increase your monthly payments.
Investing
While it may seem counterintuitive to start investing while you have student loan debt, investing even small amounts of money can help you build good financial habits for the future. If your employer offers a 401(k) with matching contributions, take advantage of this, as it's essentially free money for your future. You can also decide on a percentage of your extra money each month to put towards investing, gradually increasing this percentage as your student loan debt decreases.
Crowdfunding
If you've exhausted other options, you might consider crowdfunding as a way to raise extra money to pay off your student loans. You can create a campaign on various platforms to solicit donations from friends, family, and even strangers. However, be sure to evaluate the costs and choose a reputable platform.
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Crowdfunding
There are numerous crowdfunding websites to choose from, each with its own features and fees. GoFundMe, for example, has been used by many people to raise funds for student loan repayment, and it also acquired YouCaring, which offers daily access to funds and allows fundraisers to run for up to 120 days with no limit on the number of campaigns. Fees for YouCaring include a payment processor cost of 2.9% plus $0.30 per transaction. GoFundMe also has a fee, though it is not specified. Other crowdfunding sites include LoanGifting (which charges a 3% fee plus payment processing and transaction fees), Paidly, and GoGetFunding.
When choosing a platform, it is important to consider factors such as the ability to share your fundraiser easily on social media, a user-friendly mobile app, and helpful customer support. It is also beneficial to choose a site that allows you to keep as much of the money raised as possible. To increase the chances of a successful campaign, it is recommended to start with your personal network of family and friends, asking them to share on social media even if they cannot donate. A creative and positive campaign name and interesting, low-cost rewards can also boost engagement.
While most crowdfunders will not have a fully funded campaign, with the right approach and platform, it is possible to raise a significant amount of money to put towards student loan repayment.
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Investing
Start Small and Build a Habit
You don't need a lot of money to start investing. Even with $5 per week, you can take advantage of compounding returns. Starting small can help you build an investing habit and make it easier to continue investing as your income grows.
Assess Interest Rates
Consider the interest rates on your student loans. If your loans have a relatively low-interest rate (generally considered to be below 6%), it may make sense to put more of your money towards investing. This is because, over time, you will likely earn more from investment returns than you would save by paying off your loans faster. However, if your interest rates are higher, it's advisable to focus on repaying your loans first.
Take Advantage of Employer Matching
If your employer offers a 401(k) plan with matching contributions, this is essentially free money for your future. Contribute enough to get the maximum match. For example, if your company matches 100% of the first 3% you contribute, consider contributing at least 3% of your salary to take full advantage of this benefit.
Refinance Your Student Loans
Refinancing your student loans can help you secure a lower interest rate, reducing your monthly loan payments and the total amount of interest you'll owe. This can free up some of your income for investing.
High-Yield Savings Accounts
If you prefer a more conservative approach to investing, consider high-yield savings accounts. These accounts offer higher interest rates than traditional savings accounts, allowing your money to grow over time while remaining relatively accessible.
Create a Budget
Creating a budget is crucial to understanding your financial situation and making smart decisions. Track your income and expenses, including student loan disbursements and payments, to allocate your money effectively. This will help you determine how much you can realistically put towards investing while managing your debt.
Remember, everyone's financial circumstances are unique, and it's important to consult a financial advisor for expert advice tailored to your specific situation.
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Frequently asked questions
Crowdfunding involves raising small amounts of money from a large number of people, often via online platforms like GoFundMe. It can help you raise money to pay off your student loans, but success depends on the size of your network and the generosity of donors. It's important to be transparent about how the funds are being used and to provide updates to donors.
Yes, there are grants and loan forgiveness programs available to help pay off student loans. Grants are typically need-based and can be used to pay off both private and federal loans. Loan forgiveness programs are often industry-specific, such as the Teacher Loan Forgiveness Program or the National Health Services Corps loan repayment programs for medical professionals.
Yes, you can explore employer assistance through educational assistance programs (EAPs) or look into refinancing your student loans with a private lender, which may provide different repayment options or lower interest rates. Additionally, some organizations may provide loan repayment assistance in exchange for volunteer work or community service.
