Congrats! The government forgave $10,000 of your federal student loan debt (or $20,000 if you received a Pell Grant). While this student loan debt forgiveness is awesome, you probably still have loans left, and – unfortunately – they aren’t going to pay themselves. To help you make a game plan for your financial future, we’ve put together some tips on how to pay off student loans fast.
1. Pay More than the Minimum Each Month
The first thing to consider is: how long does it take to pay off student loans?
It can take a very long time to pay off student loans if you’re only making the required minimum monthly payment each month. It’s important to remember that student loans are interest-bearing. And while student loan interest rates are not as bad as credit card interest rates, it still builds up over time. The longer you take to pay your loans, the more you will pay in interest.
That is one reason why it’s helpful to pay more than the monthly minimum if you’re able. Even if you’re not able to pay significantly more than the minimum, adding just a few extra dollars to each payment could shave a few months off at the end of the loan and lowers the total interest you’ll pay over time. The more you can pay over the minimum requirement, the better.
2. Use Autopay and Add a Little Extra
This tip is a slight modification to suggestion #1. In addition to adding a little extra to your monthly payment, it can be helpful to set up autopay. Autopay ensures the payment happens on time, eliminating the risk of missed payments or late fees. Avoiding late fees and negative reports to credit bureaus will help you pay off the loan quickly and efficiently without any marks on your credit.
3. Refinance for a Lower Interest Rate
Not many people realize this, but you can refinance your federal student loans. When looking into this option, it’s important to remember that federal student loans have some benefits that private loans don’t. If you refinance through a private lender, you can’t take advantage of federal Student Loan Debt Forgiveness Programs.
One plus side of refinancing your public student loans with a private lender is that the government can’t keep your tax refunds or withhold social security benefits if you can’t make your payments. However, private lenders will report your payment history to the credit bureaus, meaning late and missed payments can affect your credit report. At worst, they can even sue you for unpaid balances.
4. Shorten Your Repayment Plans
A shorter repayment plan is one of the quickest ways to consolidate student loan debt. If you have federal student loan debt, you can access multiple repayment options. The most common repayment options are the 10-year standard or the graduated plan. Because your monthly payments will likely increase, you should use the FSA loan simulator to predict your future payments. Be sure you can afford this option before shortening your repayment plans.
For private student loan debt, repayment options range between 5 and 20 years. While a 5-year plan may seem like the dream option, once you choose a plan there is no going back. Yes, shorter plans offer lower interest rates, however, you must be sure that you can afford the monthly payments for the entirety of the repayment plan. Otherwise, you can find yourself in a web of refinancing.
5. Make Interest Payments While in School
A lot of people don’t realize that interest accumulates on student loans before you graduate. Insurance companies refer to this as “capitalized interest.” Capitalized interest is added to the principal once your after-graduation grace period expires.
You can avoid capitalized interest by making payments while you’re still in school and save hundreds (or thousands) of dollars over the loan’s life span.
Pro Tip: Consider Term Life Insurance
Life insurance isn’t something most college students think about. Many young professionals in their late 20s and 30s often overlook life insurance, as well. If you are carrying around student loan debt, however, term life insurance is something you should consider for you and your family (or future family).
Why is this? Your estate is responsible for your student loan debt when you pass on. While your spouse and/or children won’t technically “inherit” your student loan debt, your outstanding balances can be taken from your estate. If your loan balances are significant, this could mean leaving your family with no financial cushion.
One of the major benefits of term life insurance is the death benefit you leave behind for your beneficiaries. Term life death benefits can range from several thousand to millions of dollars – which (depending on your coverage) can be enough to pay off student loans while ensuring your family is financially secure. What’s more, term life insurance can be very affordable, with a plan for every budget and every condition.
At Principled Life, we understand that you want to protect your family no matter what. Give us a call today and we’ll help you find life insurance that both covers your student loan debt and also gives you – and your family – peace of mind.