January 22, 2018

How to Pay off Your Student Loans as Soon as Possible

The average college graduate from the class of 2012 left school owing $29,400 in student loan debt, according to the Institute for College Access and Success. And almost 12 percent of borrowers are 90 days or more behind on loan repayments, the Federal Reserve Bank of New York reports. This debt burden has delayed home ownership for many graduates, with Harvard’s State of the Nation’s Housing study finding that home ownership is down 8 percent for Americans between 25 and 34. If you’re in school or about to graduate, the best way to improve your financial outlook is to develop a strategy for paying off your student loan debt as soon as possible.

Minimize Your Debt

When tackling student loan debt, your first line of defense is preemption. EducationPlanner.org outlines strategies for minimizing your college debt, including earning credits while still in high school, taking general courses at a less expensive community college before transferring to your four-year school, and thoroughly exploring all financial aid options. FinAid.org provides a comprehensive online guide to all forms of financial aid, including scholarships and grants that don’t have to be paid back.

How to pay off your student loans

Develop a Smart Debt Repayment Strategy

Avoid common repayment mistakes, so you don’t end up paying more than you need to. For instance, if you have several loans with different interest rates and you set up a standard payment plan using automatic debit, you could unintentionally end up paying more interest than necessary. Instead, use a targeted plan that pays off your high-interest loans first. Similarly, if you receive regular payments from a structured settlement, consider selling your future payments to a company like J.G. Wentworth; you could then take the lump sum of cash and put it toward your highest-interest debt first.

The Department of Education’s Federal Student Aid site provides an online guide to assist you with organizing your repayment plan. Use the various repayment strategies wisely (especially forbearance, as your loan accrues interest even while you’re not making payments), and make sure your tax returns are optimized for student loan debt. An experienced student loan or financial advisor can help you navigate these issues.

Save Before You Graduate

One way to repay your debts faster is for you or your family to start a savings fund before you graduate. Bankrate provides an online guide to 529 plans and Coverdell Education Savings Accounts, two of the most popular tax-advantaged savings vehicles. Using savings plans can affect your financial aid eligibility, so be sure to research this potential impact before selecting a plan.

Get Assistance After Graduation

Help repaying your loans may also be available after graduation. Income-driven repayment plans that adjust your payments to your income, such as Income-Based Repayment, are available to those meeting financial hardship and other eligibility requirements. The Public Service Loan Forgiveness Program can also assist with repayment for those taking jobs in certain areas such as government, family and child services, and nonprofit teaching and nursing.

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