For many young people today, student loan debt is just part of the college experience -- one that often follows them for a decade or more after graduation. The best-case scenario is that it costs you money and forces you to put off some of your other financial goals for a little while. The worst case is it can ruin your credit and your financial security.
Paying off your student loans quickly can reduce the amount of money they cost you and the amount of time they get in the way of the rest of your life. It's not always the easiest thing to do, but here are a few tips that might help you unshoulder that burden faster.
1. Choose the student loan repayment plan with the highest payment you can comfortably afford
The student loan repayment plan with the lowest monthly payment might seem like your best option because it gives you more cash to spend today. That might actually be the right choice if you qualify for student loan forgiveness programs, like Public Service Loan Forgiveness (PSLF). But if you're paying back the loan on your own, choosing a lower monthly payment could extend your loan term and end up costing you more in interest in the long run.
When you choose a student loan repayment plan with a higher monthly payment, each payment will make a bigger dent in your balance, enabling you to pay back what you owe more quickly. But make sure you choose a student loan repayment plan that you can afford. Missing monthly payments could cost you in late fees and lower your credit score.
2. Apply for student loan forgiveness programs
If you believe you qualify for loan forgiveness, don't take any of the other steps listed here to pay your federal student loans off more quickly. This will only cost you money that the government would have forgiven on your behalf.
However, private student loans are never eligible for forgiveness, so you can use these steps to pay them off faster.
Teachers, members of the military, and those providing a public service, like doctors, may be eligible for federal student loan forgiveness if they work in a qualifying position for a certain number of years and make a certain number of on-time payments on a qualifying repayment plan. PSLF, for example, requires that you work for a qualifying employer for 10 years, make at least 120 on-time payments, and submit an annual employment certification form in order to be eligible. If you're interested in pursuing PSLF, reach out to your loan servicer to check if your employer qualifies for the program and submit your first employer certification form to get the ball rolling.
3. Pay more than the minimum
Whenever possible, pay more than the minimum each month, but do it with care. Some lenders may apply any extra money toward your next month's payment or spread it around among all your loans, which won't have the impact you want it to. Send your extra payment with instructions to your lender telling it that you want any extra funds applied to the principal balance on your loan with the highest interest rate first. Follow up with your loan servicer later to ensure that it applied your payment correctly.
You might have to make some budget changes to free up some extra cash. You could also use year-end bonuses, tax refunds, and other windfalls, though you can't count on these to help you out every month.
4. Refinance when you can find a better interest rate
Keep an eye on student loan interest rates even after you graduate. If they drop, consider refinancing. This will slow the pace at which your balance grows so that each payment shaves more off your principal and you can pay off your loan more easily.
Only private student loan companies offer refinancing. Federal student loans do not allow this, though you can consolidate multiple federal Direct student loans into a single Direct consolidation loan if you choose.
Private student loan companies usually do not offer the variety of repayment options that federal student loans have, but they may offer you a lower interest rate, especially if you have good or excellent credit.
5. Seek out employers that offer student loan repayment assistance.
An increasing number of employers are offering student loan repayment assistance as a benefit to entice young graduates. Each company has its own system and some may require you to work for the company for a certain number of years before you become eligible. Make sure you understand each company's policies before you apply for the job to understand what you can expect.
Don't choose a company just because it offers student loan repayment assistance. And remember that money they give you for this is still taxable, just like your regular income. Do the math -- if another company will pay you more than the one offering student loan repayment assistance, you might be better off skipping the assistance and getting the larger paychecks instead.
The above tips may require some short-term sacrifices, but remember, you're doing this to save yourself money in the long run so that you can more quickly achieve your other financial goals.