Paying off student loans – it’s not something anyone looks forward in their life after college, but it’s practically a necessity due to increasing tuition prices and fees.
Depending on what school you attended, you could be facing a few thousand dollars or tens of thousands of dollars. For some, the debt amount may seem extremely daunting and there may seem like there is no way out. Don’t fret! As a social services worker who doesn’t make a lot of money, I have student loans and understand your situation.
Although I can’t wave my magic wand and make your debt disappear, I can provide you with 7 tips for paying off student loans.
P.S. I have a post that explains how I earned extra money so I could pay off my student loans quicker. Check it out here: How I Paid an Extra $3,000 on My Student Loans in One Year.
1. Start Early
Depending on the types of student loans you have, you may be accountable for paying interest that accumulates while you are in-school or in deferment. The loans you will want to look out for are the unsubsidized loans as these are the ones which you are responsible for any accrued interest at any time.
Although no payment is going to be required while you are enrolled in school at least half time, you will still want to start paying off student loans early so that you won’t have to pay as much in the long run. Even if you can only contribute $10 each month to the bill, at least that’s $10 that won’t be accruing interest anymore!
Think about it – if you are in school for four years and you put $10 toward a subsidized or unsubsidized student loan each month, then you already have $480 paid off by the time you graduate!
Extra Tip: Ask your lender to apply your early payment to the loan that is accruing interest. If you don’t have any that fit this criteria, ask them to apply it to the loan with the highest interest rate or balance.
2. Shop Online to Earn Money
Getting cash back from your online purchases is an easy step you can take to pay off student loans. Ebates is my personal favorite because they have a wide range of store options, AND they offer double cash back days!
Upromise is another program that allows you to apply your earnings directly to an eligible student loan, or you can create a college savings account if you have a child you would like to start an account for.
Finally, Swagbucks has expanded their services to allow members to earn cash back by shopping and eating locally! All you need to do is connect one of your credit or debit cards to your account. It may not seem like much at first, but every little bit counts when it comes to paying off your debt.
3. Use the Debt Snowball Method When Paying Off Student Loans
The theory behind the debt snowball method is simple – pay off bills in the quickest way possible! The best way to describe how this works is to provide an example:
Joe needs to come up with a plan for paying off student loans. Listed below is the amount of each loan, the interest rate, and the minimum payment necessary.
Loan 1: $4,500
Interest Rate: 2.75%
Minimum Payment: $50
Loan 2: $1,000
Interest Rate: 5.75%
Minimum Payment: $25
Loan 3: $5,750
Interest Rate: 4.5%
Minimum Payment: $75
Joe has a monthly budget of $200 to put toward paying off student loans. He decides that the debt snowball method would work best for him. Here is how he divides his monthly budget:
Loan 1: $50
Loan 2: $75
Loan 3: $75
You will notice that Joe is paying the minimum balance on loans 1 and 3 but he is paying $50 extra on loan 2. The reason behind this is that with the debt snowball method, you want to start with the lowest balance first and then work your way up.
Now, let’s say that Joe has paid off his $1,000 loan and he is still budgeting for $200 a month for the loans:
Loan 1: $125
Loan 3: $75
Joe has taken the $75 that he was using to pay loan 2 and is now using it to pay off loan 1 quicker. The whole process will continue until Joe has paid off that loan and is using his full $200 each month to put toward the largest loan, the third one. The debt snowball method is used until all balances are paid completely. This is an aggressive approach to paying off student loans – You will have to get really good at budgeting and cutting back in some areas, but I promise that this method works and is worth the initial sacrifice!
4. Loan Forgiveness Programs
If you work in public services or are a teacher, you may not have to worry about paying off student loans forever because you could be eligible for one of the forgiveness programs (which typically require you to work ten years in the field before being eligible)
The key to taking advantage of these programs is to take part in repayment plans that are based on your income. If you stick with a standard repayment plan, your loan should be paid off in full after ten years, so that would be defeating the purpose. Also, graduated repayment plans aren’t accepted with loan forgiveness programs. More information about loan forgiveness programs can be found at the Federal Student Aid website.
5. Make Extra Payments When Possible
Look, student loan debt isn’t going to go anywhere, so you might as well get rid of it as fast as possible. Although no one wants to use their spending money on bills, it may be wise to take at least a portion of those extra funds and put them toward a high balance loan or one that has high interest.
Do you want to be paying off student loans for the next ten or more years? I didn’t think so!
6. Avoid Default
You may have heard of default before. Trust me, it’s not something you want to have on your record. I’ve worked with students in the past who have been in default and they were unable to get additionally funding to go back to school. Also, their credit was typically affected, and not in a good way.
Remember, this is the government’s money that you have borrowed and are now not paying back! Because of that fact, the government could withhold some of your tax return money or even take money from your paychecks if they want to. Don’t let yourself get to this point! If you know you are experiencing a financial hardship and you just can’t make the payments right now, call your lender and see what you can work out with them. It’s better to put a loan in forbearance for a short period of time than to have a tarnished credit report.
7. Continue to Look for Scholarships and Employers Who Pay for Your Education
Certain companies offer scholarships to help you with paying off student loans. There are also employers who will pay their employees to go to school.
If the free money is there for you, go after it!
Even if your employer is only able to pay for any education that you do in the future, it could still be well worth your time because advanced education typically means a higher paycheck in the end. As for scholarships, keep doing your research and make it a goal to seek out those that specifically are available to students who have debt from being in school.
I highly recommend keeping a budget sheet to help you track all of your bills and expenses. By doing so, you may find some extra money that you can use for paying off your student loans!
For more financial aid and student loan tips, check out the following: