Do student loan payments seem overwhelming? The average student graduates college with $37,172 in student loans. You may be thinking that the only way to pay off student loans is by making big monthly payments for years and years.
Fortunately, there are other options! In this article, we will discuss 9 steps on how to pay off student loan payments faster so you can save money sooner rather than later.
1. Understand federal student loan repayment options
The federal student loan repayment options are calculated in a linear fashion. This means that federal student loan payments are based on the size of the federal student loans, the federal student loan rates, terms, and the length of time that you have been repaying federal student loans.
One federal student loan repayment option is extended repayment. Extended federal student loan repayment is an income-driven federal student loan repayment plan which provides for monthly federal student loan repayments that will never exceed twenty-five per cent (25%) of your discretionary income.
The federal government pays for an extended federal student loan repayment plan if you don’t pay for it when you’re not employed or enrolled in school. You must be enrolled in one of these two programs: Income-Based Repayment (IBR) or Pay As You Earn Repayment Plan.
Another federal student loan repayment option is graduated federal student loans. Graduated federal student loan repayments are designed to help borrowers through the initial years of federal student loan repayment when they’re starting out in their professional lives with lower incomes than what is expected upon graduation from graduate school into high-paying jobs.
This federal student loan repayment plan has increased payments per month that start off small and increase every two years until the borrower reaches full federal student loan payment amount at ten years after which it will remain for five more years before becoming completely debt-free.
The monthly federal student loan repayment under this type of program varies from $50 and $500 depending on the federal student loan amount borrowed.
Last but not least is a combination of these two different types of plans which allows borrowers who have graduated from college or professional school to enjoy any one (or more) combinations thereof based on their individual financial situation at that time while federal student loan repayment.
P.S. The federal government does not charge interest on federal student loans while you are enrolled in school or during grace periods and federal student loan deferment periods.
2. Figure out how much you owe
Figure out how much you owe – This is the most important step. You need to know which interest rates apply to your loan, whether it’s based on grad rates, undergrad rates, or variable interest rates.
3. Compare student loan refinance rates and get a lower interest rate
The best way to save on student loans is by refinancing your student loan with a private lender and lowering your interest rate. It might be hard to judge the various interest rates, but there are some good low-rate providers out there so you should do your research before signing any contracts.
4. Make an extra payment each month to pay off your loans faster
Making an extra payment each month can have a huge impact on how soon you’ll be debt-free. There are a few easy ways to make an extra payment: set up automatic payments, sign up for electronic notices, or even fill out the form at studentloans.gov.
5. Make fixed payments
Making fixed payments on your student loans can help you to pay off your loans in a short amount of time. Most fixed rates are fixed for a period of 10, 15, or 20 years.
Depending on the fixed rate that you decide to go with when taking out a fixed payment mortgage when it comes time to pay off the loan in full, you will have paid much less interest due to the fixed-rate plan. In many cases, fixed rates are lower than variable rates and thus may be a better choice for people who have lower credit scores.
For federal student loans, fixed rates can depend on where you got your loan from originally. For instance, fixed rates from the Department of Education will be fixed for a predetermined amount of time. The fixed rates offered by the Department of Education range from fixed for one year to fixed for ten years (or up to thirty-five years).
The federal student loan program has a number of different options that you can use in order to pay off your loans faster, including extended repayment plans and graduated payment plans. An extended plan will allow you more time on your payments but also lead to higher interest paid over the life of the loan due to increased overall length compared with other types of repayment programs.
This fixed rate may be a good choice for someone who has a good idea of how much they will make upon graduation and thus can plan well in advance to pay off their fixed rates as quickly as possible.
In addition to fixed payment plans offered by the federal government, there are also fixed loans from private lenders which allow you to lock your interest rate when taking out the loan so that it doesn’t change throughout its lifetime or until after a certain period of time passes (usually around five years).
This type of fixed repayment program is helpful because many people have trouble predicting what kind of salary they will receive once school ends, making them hesitant about going with an extended repayment plan where fixed rates could change over time.
When you take fixed-rate student loans, your interest is fixed for the duration of the repayment plan which means that it will never increase or decrease during its lifetime.
This can be beneficial because even if interest rates are higher when you begin to repay your loan, they won’t increase throughout your repayment period and they can help reduce how much money ends up being paid back in total on an already expensive expense like a school education.
Fixed payments on federal student loans may also depend upon what type of direct loan program you want to use with regards to whether there are fixed payment plans available from private lenders as well as through federal funds.
The Department of Education offers fixed payback options for FHA Direct Loans but does not offer fixed payback plans for the Federal Direct Loans program itself.
6. Find a student loan refinancing calculator to see if you could save money by refinancing your student loans
Find a student loan refinancing calculator to see if you could save money by refinancing your student loans. A new concept has been developed in which you can refinance your degree, and it can be done on a monthly basis at a lower interest rate. In the end, you will be paying less for your degree.
Not only does this work on a monthly basis, but it also works for undergraduate or graduate degree holders and is always an excellent opportunity to refinance and save more money than what you would have originally agreed to pay with the school.
7. Apply for income-based repayment plans (IBR)
A lot of people don’t know that there are options for borrowers who need help repaying their student loan debt. There’s one type of plan for all federal loans and some private lenders offer Income-Based Repayment (IBR). This type of repayment plan sets your monthly payment as a percentage of your income and lets you “pay as you earn.”
If eligible – this helps borrowers who work in public service jobs or have low incomes by capping their monthly loan repayments at 10% of their discretionary income (after taxes)
- IBR will forgive any loan balance remaining after 25 years of qualifying repayment or 300 months (whichever is earlier) – If your income is low enough where the monthly payment you would make under an income-based plan is lower than it would be on a Standard Repayment Plan, then there’s no reason not to enrol in IBR
- If your income is low enough where the monthly payment you would make under an IBR plan is high, then consider enrolling in a Graduated Repayment Plan – this will start out with lower payments that increase every two years until they reach a maximum amount usually between 12% and 15% of your discretionary income.
- If you make your full payments every month – it can take less time to pay off student loans than what was stated on the original promissory note. For example, under an income-based plan (IBR), if you paid $50 per month for 25 years (300 months) instead of the standard repayment term of ten years (120 months), then you would save thousands in interest and repay your loan five years earlier.
8. Keep track of how much interest is being paid over the life of the loan
The easiest way to pay off student loans is to keep track of how much interest is being paid over the life of the loan. Take note of this, and if possible, work it into your monthly budget so you can adjust accordingly. The more money you put towards paying off that interest, the quicker your debt will decrease.
9. Explore federal student loan forgiveness programs
Explore programs to reduce the amount you owe. Some borrowers may qualify for hardship or income-driven repayment programs that can lower your monthly payment and extend your loan term.
There are also three different ways to apply for student loan forgiveness: an economic hardship, a teacher shortage area, or a Borrower Defense of Repayment of Loan.
In conclusion, paying off student loan payments faster is a great strategy to generate more income and save money. If you are looking for ways to pay off your student loans faster, there are a few things that can help.
First of all, don’t just stick with the minimum payment amount – even if it is more than what you would have paid in interest on an instalment plan. Paying extra each month will save you money in the long run and may seem like less when divided by 12 months instead of 10-30 years.
Secondly, make sure to at least be making payments consistently or else default rates go up significantly which means paying back much more over time.
Finally, take advantage of any tax deductions offered by government programs such as income-based repayment plans (IBR) or public service loan forgiveness (PSLF). These options offer more options when it comes to a repayment plan and may help reduce your monthly payment amount.