This month’s newsletter is the conclusion of our multi-part series on student loans. If you did not read the first two articles of the series, consider reading them here. Our final part of the series will focus on those who already have student loans. The article gives some suggestions that may help you pay off your loans more efficiently.
So, you have student loans, now what? Contrary to what the robo-callers say, paying off your student loans is not something done through a simple phone call. In actuality, paying off your loans will take time and discipline. But when finished, you should have much better financial habits which will provide you lasting benefits for the rest of your life.
Before you continue, consider reading our article from a year ago that discusses how to pay off debt effectively. One of the best ways to pay off your student loans quicker: Keep your lifestyle as relatively inexpensive as you can. How long it will take to pay off the loans depends on the spending choices you make. Forgoing spending on items is not always the easy choice and it will require some judgment and discipline; however, most of you with student loans are still fairly young and therefore have more ability to maintain a cheaper lifestyle. Avoiding your student loans all together can have a negative impact on your credit score and financial history that may follow you for a long time. We would not recommend avoiding your loans completely.
Suggestions for paying off your student loans
1. Start making payments on your loans as soon as possible. Regardless of what your income is after graduation, it is imperative to stop the deferral process by beginning to make payments toward your student loan debt. The longer you defer your loans, the larger your student loan balance gets. One benefit to paying towards your loans is that the interest paid on student loans may be used as a tax adjustment on your income tax return. Interest paid on Federal and privately funded loans can be used toward this adjustment so long as the loans are designated as student loans.
2. Concurrently, shore up your other personal financial affairs. Ultimately, your student loans are your priority. However, at a minimum, you should develop an emergency savings account and contribute to your employer’s retirement plan if one is offered. Even if that means contributing the minimum amount possible to your retirement account. Developing an emergency fund is imperative for your financial well-being and contributing to your retirement account this early in life will provide long-term benefits. Once these accounts and your monthly expenses are accounted for, you can begin to adequately contribute any additional monthly funds you have toward your student loans. Balancing the contributions to your savings accounts while contributing extra to your student loans will be tough at times, but should provide long term benefits.
3. If you have an adequate amount saved and have begun contributing to your retirement account(s), consider increasing your monthly payment toward your student loans. By increasing your payments, you are reducing your overall balance which should then reduce the amount of time it will take to pay off the loans. These additional payments may be something you set up to be systematically or done by discretion on a month by month basis. It is best to allocate any extra funds you have to the debt that is charging you the most interest, which should over time, reduce your overall debt level. For example, when given a raise, consider putting a portion of the increase towards your loans. Developing this habit early should reduce both the time it takes pay off your debt and the amount of interest actually paid to the lender(s).
4. Depending upon your student loan balance and/or the loan’s interest rate, consider refinancing the loans. Some of you will finish school with a relatively small student loan balance, $5,000 for example. Others will graduate with loans in excess of $100,000. For those of you with large balances, it may make sense to consider refinancing the debt. By refinancing your goal would be to reduce your interest rate, which could potentially reduce your overall student loan balance and monthly payment. Be mindful that refinancing may also extend the term of your loans, which would reduce your monthly payment but may not reduce the amount you actually pay back.
5. Research alternative repayment methods to pay them off. The Federal government offers a number of alternative repayment methods based upon the borrower’s income and current employment status. Read more about those alternative plans, here.
6. You can apply to have your student loan debt paid for by the Federal government. Under special circumstances and criteria, the Federal government will pay off your student loan debt. Although, recent reports have shown that this method should not be relied upon, which is why we mention it last.
As this multi-part series explained, student loans while easy to obtain are an immense burden to the borrower. Do your research before borrowing and if you already have student loan debt, consult our suggestions above. If you have any further questions concerning student loans, please contact us.