The student loan burden in the U.S. is currently $1.3 trillion, dispersed among 44 million borrowers. While the amount of outstanding student loan debt varies widely among those loan recipients, the average 2016 college grad will leave school with a student loan bill totaling $37,172. That is a lot of debt, and if you are among those with student loan debt, it can feel like you will never be able to pay it off.
Student loan debt can certainly be a huge burden on new graduates, and it can continue to plague you for many years to come. For many recent — and not-so-recent — graduates, student loans can hinder hopes of home ownership, and can even linger on unpaid until they begin to negatively impact your credit score.
By paying your student loan off more quickly, you will save yourself money on interest, lower your debt-to-income ratio, and improve your credit to help you to reach your other financial goals faster.
Here are some tips to pay off your student loan faster:
Do not wait until graduation. Many college students are unaware that they can — and should — start making payments on their student loans prior to graduation. Doing this can be a huge benefit when it comes to cutting down the time it will take to repay your loans. Consider this: If you obtain a $10,000 student loan with an interest rate of 7 percent as a freshman in college, making monthly payments of $75 immediately will save you about $694 in interest by the time you graduate. One note of caution: Some private loan companies assess penalties for early payments, so make sure to check with your lender before making early payments.
Apply any early payments to principal only. If you are in a position to begin making payments on your loan immediately, make sure to specify that those payments be applied to principal, not interest. Lenders will typically apply payments to interest first, but by beginning payments before they are due, you have the option of applying those payments directly to the principal loan balance. Make sure to contact your lender to specify this so you can begin making some real progress that will save you money in interest down the road.
Make more than the minimum payment. Adding more to your monthly payment is one of the easiest and most effective ways to chip away at your student loan debt. Anything extra you add to your regular monthly payment will be applied to your principal. If you have set up auto payments, change those to include the extra amount you would like to pay. By adding this to your auto pay it will make it easier to stick with it. Even as little as $20 extra each month can add up to make a big difference.
Live with mom and dad a bit longer. You graduated college and you want to spread your wings and fly. Rest assured, there will be plenty of time to be an adult. If you can, take advantage of free room and board and apply some — or all — of the funds you would have used for rent or a mortgage to your student loan balances. A little bit of pain can yield a lot of gain and you will be surprised how much of a dent you can make in your student loan debt by living at home for just an extra year.
Refinance/consolidate your loans. If the interest rates on one or more of your existing student loans are on the high end, look into refinancing. If you have multiple loans, you may be able to consolidate them into a single new loan with a lower interest rate and monthly payment. Just be sure that if you are rolling a federal loan into a refinanced private loan, that you are not giving up some of the perks of those loans, such as deferment options. Of course, if your goal is to get rid of your student loan debt faster, deferment may be an easy sacrifice to make for a lower interest rate and payment.
If student loan debt is having a negative impact on your credit, you could benefit from credit repair services. At Lexington Law, we offer a free credit report summary and consultation. Contact us today at 1-844-259-3482.