Hey! This is Ms. LLC, and Max was kind enough to let me write a guest article for him today. I recently started a new blog, Lovely Life Cents, and I am using this opportunity to showcase my writing a bit. Check out the blog when you get a chance!
Student debt is a necessary evil that is crippling graduates out of college left and right. Why would something necessary be so crippling? Years after graduating, student loans are still a budget item to work around that limits your options moving forward. It can be hard to get a mortgage and save for the future when you are still paying for the past.
Thankfully, there are plenty of ways you can speed up your loan repayments and save yourself thousands in interest payments by doing so.
Start early, work in school
If you’ve already graduated, this might not be an option, but while you are studying, consider taking on some part-time work. For a few hours a week, you could bring in enough to cover your groceries and text books. While it might not seem like much at the time, you could earn thousands towards your expenses over the course of four years. Without part-time work, you might be forced to borrow more money to put towards your additional expense which will just take longer to pay off down the road.
While it might seem like over-extending yourself to work, look for entry level work in your field; this would actually help you find a job later too. If you’re working towards teaching, look for tutoring jobs. If you’re studying science, look for paying internships, and for journalists, consider freelance writing. Not only will you be earning and saving on your student loans, but you’ll kick start your career before graduation.
Refinance for a lower rate
If you’ve graduated and you’re struggling under the weight of student loans, consider refinancing with a private lender. If the average American is graduating with $37,000 in student loan debt at 7% APR, then you’ll be hit with a monthly payment of $430. Over the life of the loan, you could pay over $14,000 in interest.
However, by refinancing at a lower rate, you could drop your monthly repayments and save in interest over the life of the loan.
Pay more often
If you’re only making payments once a month, consider upping the number of payments. By making smaller payments every two weeks instead of single, monthly payments, you can stymie the capitalization of interest and cut down the principal balance sooner. By making fortnightly payments, you’ll sneak in an extra months’ worth of payments each year that are barely noticeable in your budget.
While paying of $37,000 with fortnightly payments, you will save $1,700 and knock a year off your repayment schedule. This is the same as dropping the cost and length of your loan by 10%, just by splitting the monthly payment in half and paying every two weeks.
Income Driven Repayment plans
If you are struggling to make your payments, switch to an income-driven repayment plan. If you are on a low income, then an income-driven repayment would be ideal, allowing you to accommodate other expenses while making lower student loan payments. Of course, if you are on a higher income, then the repayments will increase to account for your greater income.
Income-Driven Repayment plans set your payments at between 10% and 20% of your discretionary income, depending on the loan type. Your discretionary income is not your entire income, but:
“For Income-Based Repayment, Pay As You Earn, and loan rehabilitation, discretionary income is the difference between your income and 150 percent of the poverty guideline for your family size and state of residence. For Income-Contingent Repayment, discretionary income is the difference between your income and 100 percent of the poverty guideline for your family size and state of residence.”
Poverty guidelines are defined by the U.S. Department of Health & Human Services and vary based on your location and family size.
Income-Driven Repayment plans are designed to ensure you are never struggling too much with your repayments, but they won’t get your loan paid off any faster. These plans make assumptions about how much money you need to live a comfortable life. If you’re striving to pay down your loans faster, consider cutting back in your day to day life to supercharge your loan.
There is nothing stopping your from making extra payments on these loans. Consider switching your $50 date night from once a week, to once a fortnight. Push the savings in to your loan and you could save six months off the life of your loan.
Earn more with a side hustle
One of the most obvious ways to cut down your loan faster is to earn more and pay more. The obvious way to earn more is to strive for a promotion and a pay rise. However, if you have a few hours free each week, then you can put that time towards a side hustle, rather than watching re-runs of the Jerry Springer show.
Side hustles can range anywhere from the traditional ideas like freelancing online, babysitting, tutoring, and basic yard work to the stranger ideas like raising and selling crickets (it happens) or being a Rent-a-Friend. There are plenty of ways to bring in an extra buck. Throw those dollars at your student loans and you’ll be debt free years earlier.
Really struggling? Consider a federal consolidation loan
If you have loans with multiple providers and are struggling to keep your head above water with repayments, consider a federal consolidation loan. You can lower your payments and extend the loan term. While this might cost you more in the long term, getting your feet back under you now may be more important.
Also, if you are working in the public service, you may become eligible for Public Service Loan Forgiveness with a federal consolidation loan.
The bottom line
Student loans are a necessary evil for many people, and a good education gives you access to careers that would otherwise be closed to you. However the loan repayments can cause trouble for years to come if you don’t plan for them. Whether you plan to pay down your loans early, or simply want to keep your head above water make sure you go into your debts with a plan to come out safely on the other side.
Thanks Ms. LLC! As someone whose household graduated with close to $100K in student loan debt, I know this subject all too well. There are a number of strategies to deal with this kind of debt, and as you point out, good ones start before you even take on the debt. If you’re still struggling with student loan repayments, there’s plenty of options, including reducing interest rates.
Readers, did you have a ton of student loans before starting your career? Did you have a plan to repay them before graduating, or did you wing it? Do you agree that student loans are a necessary evil? Share your thoughts and comments below!