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Yes, it’s time to pay off your student loans faster.
Is this the year that you finally pay off your student loans? Whether the answer is yes or no, keep reading for the best strategies to lower debt and live a better financial life.
Here are 7 action steps to help pay off your student loans faster in 2019:
1. Pay more than the minimum payment
Paying more than minimum payment may sound like the last thing you want to do, but it can help pay off debt faster.
Student loans have no prepayment penalty, which means you can pay them off anytime. Why would you pay more money than you have to? Remember, interest is always accruing on your principal balance. So paying any amount more than the monthly minimum can reduce the cost of your student loans.
This student loan prepayment calculator can show you how much money you can save by paying more than the monthly minimum.
For example, let’s assume you have $50,000 of student loan debt at an 8% interest rate with a standard 10-year repayment term. By paying only $100 extra per month, you can save $4,923 in interest costs and pay off your student loans 1.99 years earlier.
2. Make an extra student loan payment
One of the best strategies to pay off student loans faster is to make an extra payment. Since there are no prepayment penalties, you can make extra payments of any amount.
Here’s how it works. First, pay at least the minimum payment each month for 12 months. Then, consider an extra payment once every three months for a total of 16 payments per year. The extra student loan payment can be any amount you can afford. Here’s the important part: make sure to contact your lender in writing and explain that you want to make additional payments several times per year. Specify that the extra payments should be applied to principal only (not to next month’s monthly payment).
Without this instruction, your lender will hold the excess payment and apply it to next month’s payment – which means you would pay more interest.
3. Make a lump-sum student loan payment
The next time you receive a bonus, tax refund, an inheritance or any other cash windfall, skip the big vacation and pay off student loans instead.
A lump sum extra payment calculator shows you how much money you can save with a one-time, lump sum student loan payment. For example, let’s assume that you have $50,000 in student loans at an 8% interest rate and a 10-year repayment term.
Here’s how much you can save:
- $500 payment: Save $515 and pay off 1 month earlier
- $1,000 payment: Save $1,019 and pay off 3 months earlier
- $5,000 payment: Save $4,675 and pay off 16 months earlier
- $10,000 payment: Save $8,423 and pay off 30 months earlier
4. Apply for student loan forgiveness
Public Service Loan Forgiveness is for student loan borrowers with federal student loans enrolled in a federal repayment plan who are employed full-time in an eligible state, local or federal public service job or 501(c)(3) non-profit job who make 120 eligible on-time payments. Teacher Student Loan Forgiveness is for full-time teachers with five years of teaching experience in a designated elementary or secondary school or educational service agency that serves students from low income families.
You can also enroll in income-driven repayment programs and receive student loan forgiveness for your federal student loans. Remember, this type of student loan forgiveness may result in you paying income taxes on the amount forgiven.
5. Take the student loan interest deduction
In certain cases, you can deduct on your federal income taxes the student loan interest you paid on your federal student loans. The student loan interest deduction is capped at $2,500 each year. A tax deduction can lower your overall income tax bill, and this deduction can be taken whether you choose the standard deduction or itemize your deductions on your federal income tax return. Focus on the amount of interest you paid, not your total student loan payment. Ask your student loan servicer for Form 1098-E and make sure you meet these requirements.
6. Focus on shorter student loan repayment programs
The length of your loan term matters. The shorter your loan term (e.g., 10 years or less), the faster you can pay off student loans. The longer your loan term (more than 10 years), the more time it will take and the more interest you will pay. Remember, income-driven repayment programs may lower your monthly payment, but interest still accrues on your loan balance. If you don’t qualify for student loan forgiveness or think you’ll repay your student loans before you would receive student loan forgiveness, then you may want to consider other options.
7. Refinance your student loans
Student loan refinance is often the single best strategy to lower your student loan interest rate.
Student loan refinancing enables you to pay off your existing student loans with a new student loan with a lower interest rate. There are multiple student loan lenders who offer interest rates as low as 2.50% – 3.00%, which is substantially lower than federal student loans and in-school private loan interest rates. With student loan refinancing, you can choose either fixed or variable rates and loan terms ranging from 5 to 20 years.
If you’re wondering how to get approved for student loan refinance, lenders may evaluate your credit profile, income, debt-to-income ratio and monthly free cash flow, among other factors.
Remember: to maximize your chances of being approved to refinance student loans, you should apply simultaneously to multiple lenders.
Stop paying extra interest. Take control of your student loans. Put more money back in your pocket — that’s where it belongs.
March 4, 2019 at 08:39AM
Forbes – Entrepreneurs