Collectively, we owe more than $1.77 trillion in student loan debt in the United States, according to the Federal Reserve. The $1.7 trillion in student debt is a 3% increase from 2020 and a far cry from the $905 billion that we owed just 11 years ago. Let's talk about how to pay off student loans.
Around 70% of college students graduate in debt.
Student loans are debilitating for many of us, holding back our wealth-building potential until we fully repay that debt, and this is especially true if you live in the United States. In fact, the U.S. has one of the highest levels of student loan debt in the world, with millions of students and graduates collectively owing trillions of dollars in loans.
“For most people who earn a college degree, student loans are just a fact of life,” writes Credible. It might be a fact of life, but those loans shouldn’t control your life.
How To Pay off Student Loans in 7 Steps
There is no question that student debt is increasing at an alarming rate. If you are struggling to pay off your school loans, here are seven ways to help you end your debt sooner.
1. Funnel Bonuses and Raises to Your Debt
This is one of the best ways to pay off student loans fast. But it can be tough to use bonuses, raises, or even tax refunds to pay down debt (after all, you worked hard for that money and want to enjoy it), but extra money can be a great way to pay down debts far quicker than just making your regular payments.
First, prioritize creating a solid financial plan that balances debt repayment with other financial goals. Take some time to assess your overall financial situation, including expenses, savings goals, and any other outstanding debts. Determine how much of your bonus or raise you can allocate toward student loan repayment without compromising your essential needs or emergency fund.
Then, consider making a lump-sum payment on your student loans using the additional income from your bonus or raise. Applying a significant portion of these windfalls directly to the principal balance of your loans can significantly reduce the overall interest you'll pay over the life of the loan.
Extra points if you put extra payments on auto-pilot using the power of financial automation.
The next time you find yourself with a little extra cash, devote at least a portion of it to your student loans. Over time, funneling newfound money into your debts will help you reduce and eliminate your debts much faster. It’s usually smart to call your lender to ensure extra payments will be applied to your principal.
2. Refinance Your Student Loans
Just as with a home mortgage, refinancing your student loans can help you reduce your student loan debt. Many working professionals refinance their student loans to reduce their interest rates.
Refinancing your student loans can save you anywhere from hundreds to thousands of dollars every year. Borrowers commonly shorten repayment terms, increasing the minimum monthly payment but drastically reducing the interest rate. Others will do the opposite and lengthen their repayment schedule by reducing their monthly payments.
Here are the basic steps and considerations for refinancing student loans:
- Assess Your Current Loans: Gather information about your existing student loans, including the outstanding balances, interest rates, and repayment terms.
- Check Your Credit Score: Lenders often consider credit scores when determining the terms of a refinanced loan. A higher credit score can lead to more competitive offers. Check your credit score and take steps to improve it if necessary. Credit Sesame offers free credit scores and monitoring to help you maintain your good credit or improve low credit to secure better interest rates.
- Research Lenders: Research various lenders that offer student loan refinancing. Look for reputable institutions, both traditional banks and online lenders, and compare their interest rates, repayment terms, and any fees associated with refinancing.
- Gather Documentation: Lenders typically require documentation such as proof of income, employment history, and loan details. Prepare these documents in advance to streamline the application process.
- Apply to Multiple Lenders: Apply to multiple lenders to get offers. This will allow you to compare the terms and choose the best fit for your financial situation. Applying within a short period, typically around 30 days, can minimize the impact on your credit score.
- Evaluate Offers: Once you receive offers from various lenders, carefully compare the interest rates, repayment terms, and any additional benefits they offer. Calculate the potential savings over the life of the loan to determine if refinancing is worth it.
- Choose the Best Option: Select the refinancing offer that aligns with your financial goals and offers the most favorable terms. Remember that lower interest rates can lead to significant long-term savings.
- Complete the Application: After choosing a lender, complete the application process. Be prepared to provide all required documentation and information.
- Loan Approval and Disbursement: Once your application is approved, the new lender will pay off your existing loans on your behalf. You'll start making payments to the new lender based on the terms of the refinanced loan.
- Stay Informed: Keep track of your new loan's terms, payment schedule, and any changes to your financial situation. Some refinanced loans may come with benefits like flexible repayment options or interest rate adjustments, so it's important to understand these details.
Note that refinancing may require you to pay off a portion of the loan in the process. Also, a credit score of 650 or more and a high income will increase your chances of refinancing your student loans in a way that will save you money.
College Ave is a reputable private student loan that also offers student loan refinance options. College Ave makes it easy to reduce your payment and secure a low fixed or variable interest rate. You won't pay any application or origination fees, and applying won't impact your credit score. Check your rate here.
3. Pay More Than Just the Minimum
Starting today, make payments that exceed the minimum amount required each month. Paying more than the minimum will help reduce the total amount of interest that you will pay (without refinancing) over the course of the loan and will also eliminate your student loans faster than just paying the minimum.
As with making extra payments after a raise, bonus, or a side hustle, call your lender to ensure that extra payments will be applied to your principal rather than your next month’s bill.
Again, use financial automation to make these additional payments automatic so you never have to think about them.
4. Apply for Loan Forgiveness
In certain circumstances, you may be eligible for student loan forgiveness. Student loan forgiveness can eliminate a portion (or all) of your student loans. But, you need to qualify based on your profession. For instance, teachers can often apply for student loan forgiveness along with those who work in public service.
Not sure where to look for student loan forgiveness programs? Here are a few ideas:
- The Federal Student Aid website: This website is a good place to start your search. It has a comprehensive list of all federal student loan forgiveness programs, including eligibility requirements and application instructions
- Your loan servicer: Your student loan servicer is the company that collects your student loan payments. They can tell you about any forgiveness programs that you may be eligible for.
- The National Student Loan Data System (NSLDS): This database tracks all federal student loans. You can use it to see what types of loans you have, who your loan servicer is, and whether you are eligible for any forgiveness programs.
- Nonprofit organizations: Many nonprofit organizations help borrowers with student loan debt. They can provide information about forgiveness programs and help you apply for them.
5. Switch to Biweekly Payments
Instead of making single monthly payments, make biweekly payments (or payments every two weeks). Over the course of the year, you’ll end up making an extra payment every single year, and you probably won’t even notice it.
With each biweekly payment, a portion goes toward paying off the principal amount you borrowed, and another portion covers the interest that has accrued since the last payment. By making more frequent payments, you reduce the time interest has to compound, effectively paying less interest over the life of the loan. When you make an extra half-payment each year, it directly reduces the principal balance of the loan.
The combination of more frequent payments and the reduction in interest means that you are chipping away at your loan balance more rapidly.
Set up automatic bank transfers to make this process easy and painless. Using a budgeting app like YNAB can help you plan your expenses in advance to ensure a smooth transition to this change in payment structure.
6. Autopay May Help Reduce Your Loan Interest
Many student loan lenders will lower your interest rate if you enroll in autopay.
With autopay, a standard amount of money will automatically be paid to your student loan balance, usually monthly. This happens without you having to lift a finger, which also means you’re no longer responsible for manually paying back your student loans.
Automation is a very powerful way to make paying off debts easy. It’s a win-win.
7. Find Out if Your Company Offers Student Loan Payback
Believe it or not, many employers around the United States will help pay off the student loans of their staff, including Aetna, Estee Lauder, and Fidelity Investments – among many others. Note that you may not get 100% of your loans paid back, but any help from your employer is better than getting no help at all.
If you don’t know if your company offers this perk, ask your boss or human resources department to see if student loan repayment is available to you.
Other Options To Tackle Your Debt
While not incredibly lucrative, there are additional ways to earn money outside of your job. Apply this extra income to your loan payments each month to exceed your monthly payment and expedite your debt payoff.
Play Games for Money
There's nothing better than getting paid for things that don't feel like work – and playing video games on your phone is at the top of that list.
These apps will pay you to play games on your phone in your spare time. Simply download the app to your mobile device, find your favorite games to play, test out some new ones, and get free money along the way.
Check out these legit apps that pay you to play games:
- Money Well – Once you start playing this new gaming app, it will track your active time in the game. As you play, you'll collect tickets you can redeem for free money or gift cards.
- Mistplay – Join in-app games to receive gift cards from retailers like Amazon, Google Play, and virtual Visa gift cards. Level up your avatar to unlock achievements and make units faster.
- Appstation – Choose and play your favorite game from the list and earn coins for every minute you spend playing games. Exchange your coins for gift cards from popular retailers such as Target, PlayStation, and Amazon.
Complete Paid Surveys
Earning money by completing online surveys can be time-consuming. However, if you are extremely committed to paying off your student loans and have a fair amount of free time, consider signing up for one (or all) of these reputable sites that will pay you to share your opinion:
- Branded Surveys – Branded Surveys conducts surveys for other companies. The survey results help companies improve their products and services, making your opinions very valuable to them. Sign up, answer a few questions so you can be matched with surveys, and start earning.
- Survey Junkie – Survey Junkie is one of the most trusted online survey sites. Simply sign up and start completing surveys. Most surveys pay between 100 – 200 points, which users can exchange for cash and online gift cards from popular retailers.
- Opinion Outpost – Opinion Outpost is another free online tool that connects major corporations and businesses to their customers. Take paid surveys safely from the comfort of your home and earn gift cards to your favorite stores like Home Depot, Macy's, the Apple store, or cash out through PayPal.