Millions of university graduates around the world have one thing in common: they are all trying to figure out how to pay off student loans.
It’s a sad but true reality. Debt is a global nuisance that follows students around like a shadow that most just can’t seem to get rid of.
Most of these students also happen to be American.
No country in the world has it worse than the United States when it comes to student debt.
With Forbes describing student debt figures in the US for 2019 as the most exorbitant ever recorded, the only more shocking revelation is the actual figure.
As unbelievable as it may seem, it’s 100% fact. Around 44 million US-borrowers have managed to accrue a total student-loan debt of some $1.56 trillion.
To make matters worse, 2018 demographic stats shared by the United States Census Bureau report that the country has an estimated population just north of 327 million. That means that 13.46% of the country’s population have massive amounts of student debt hanging over their heads.
What’s more, judging by student loan stats from previous years, the debt-hole only seems to be getting deeper.
In 2018, Forbes reported a total student-loan debt of $1.52 trillion, indicative of a marginal increase one year earlier. Statista, pictured above, recorded $1.53 trillion. Then, another agency came up with $1.48 trillion. Whatever the case, they all share a common denominator: they’re not cheap loans.
Compare this to 2017 when it was even lower, with statisticians calculating just about $1.4 trillion.
One would think that with the way things are looking, all hope would be lost.
Nothing could be further from the truth.
Stats attest to this. According to one source, Citizens Financial Group, Inc, 60% of university-graduates under the age of 35 are expected to pay off their federal or private student loans in their 40’s.
This is encouraging news! Here’s why:
- The fact that over half of debtors will be debt-free relatively early into their lives does show that there is a light at the end of the tunnel.
- Those 60% of people have never considered any of the student-loan payment strategies that we are going to suggest.
This shows that paying off private and federal loans doesn’t have to be a Herculean task. The main challenge would be paying them off fast, something that you can do with proper planning and consistency.
But how? Below, you’ll find all the information you need to help pay off student loans, broken down into 9 simple-to-follow steps.
How to Pay Off Student Loans Fast – Quick Summary
Let’s start off by reiterating this: you can pay off student loans fast. It’s not easy, but believe me – it’s possible.
Here’s a quick recap of the 9 steps that you need to take that will help you to figure out how to pay off student loans:
- Brainstorming Solid Plans That Will Pay Your Debt
- Using Student Loan Calculators To Guide You
- Weighing Out The Choices
- Thinking About Refinancing/Consolidating Your Loan
- Getting A Student Loan Interest Deduction
- Making Larger Payments In Shorter Amounts Of Time
- Lowering Principal With Extra Payments
- Cutting Down On Your Capitalized Interest
- Applying For Student Loan Forgiveness
Benefits Of Paying Off Student Loans Fast
The stats don’t lie: student loan debt has been crippling the lives of recent graduates and stunting their ability to invest in assets.
To explain, reference must first be drawn to reports done by The Institute for College Access & Success.
In one report, it showed that during the period 2016-2017, the average debt of a graduate who recently completed studies at a public institution for higher learning panned out to be a whopping $27,293.
For those who went to private schools, another report recorded a slightly higher median debt, estimating some $32,810 in student loan debt for those graduates.
These stats also reveal that 57% of graduates from public institutions had debt in comparison to the 59% of graduates from private schools.
To put these stats into a practical setting, let’s add value to them.
According to Audi, the starting price of their 2019 A4 Sedan is $39,200. Now, let’s imagine that debt-riddled graduates were debt-free upon graduation. That would mean that if they wanted, they could well be on their way to purchasing an Audi.
Sadly, that isn’t reality. Instead of being able to invest in their future, more than half of graduates have to spend their years following graduation preoccupied with clearing themselves of debt.
Therefore, the faster you clear yourself of student debt, the faster you’ll be able to smoothly transition into a successful professional life.
Now, it’s time to break down these steps.
Step 1: Develop a Strategy to Pay Your Debt
It all starts with developing a solid loan-payment strategy.
You should start by determining the total amount that you owe on all your student loans.
If you’re in doubt, visit the National Student Loan Data System. There, you’ll have access to all your information on federal student loans, including how much you’re in debt for.
If you took a loan from a private entity, the easiest way to keep track of how much you owe your lenders is by checking your credit report.
Speaking of credit report, because student loans are recorded there, be sure to make timely loan payments. If not, you’ll run the risk of ruining your credit.
While you’re at it, make a check-list of the following:
- Interest rates of various loans
- Remaining balance to be paid (with and without interest)
- Fixed/Variable rate
- Whether your loans are federal or private
- Time allowed for interest accruement
Then, move on to the following step.
Step 2: Using A Student Loan Calculator
Creating a checklist of the information that you need is a step in the right direction.
Still, it wouldn’t hurt to use a student loan calculator. They help you in a few ways:
- See how quickly you can pay off your student loan(s).
- Determine how beneficial it may be to refinance your loan(s).
- Calculate potential savings on student loans from lenders who offer incentive programs.
There are lots of student loan calculators. Each one serves a distinct purpose. For that reason, you should do some research and choose the one which best matches your specific loan-payment needs.
Step 3: Exploring Your Options
After you’ve drawn up your strategy and made your checklist, it’s time to explore your options.
But first, it’s important to remember that what pays off a loan isn’t the plan in and of itself, rather, sticking to it.
Consistency is key. I can’t stress enough on that.
Based on 2017 stats shared by the Federal Reserve, 20% of borrowers were behind on their student loan payment.
And it gets worse. A 2018 report from Judith-Scott Clayton, an associate professor at Columbia University and former Brooking expert, showed trends that in 2023, almost 40% of borrowers will probably default on their student loan payments.
Delayed payments can result in you paying more in the long run due to interest rates. That’s why paying off loans fast cannot just be about planning: you need to follow it as religiously as you possibly can. Keep in mind that if you simply can’t afford to make any payments right now, you might be eligible to postpone your payments through a deferment or forbearance.
Luckily, you don’t have to be in that situation. There are several viable options that you have at your disposal to help pay off student loans fast. These include:
- Refinancing/Consolidating your loan
- Interest deduction on student loan
- Making lump-sum payments
- Strategizing your extra payments
- Reducing your Capitalized Interest
- Applying for student loan forgiveness
Let’s go into more detail so that you’ll better understand each one of these methods.
Step 4: Refinance or Consolidate Your Loan – Explained
Depending on your loan servicer, refinancing your student loans is one of the most common solutions when it comes to paying off student loans.
And for a good reason.
In a nutshell, refinancing simply means that you’re replacing the debt that you’ve already incurred as a student with another loan that could cost you less money. This new type of loan is facilitated by a private entity which may offer you a lower interest rate that allows you to save money on what you would have originally paid.
A student loan refinance covers both federal and private loans. Therefore, you can handle all your debt in a smart and potentially quick way that saves you money.
You may be eligible for this if you have the following:
- A strong credit score.
- Stable source of income.
- A co-signer in case you don’t have an established credit history.
Here are some of the benefits associated with loan refinancing:
- Lower Interest Rates
As a student, lenders jack up the interest rate on you.
Why? It’s simple: they see you as more of a risk to their credit.
It’s rare to find a student who has a steady source of income flowing in on a regular basis. Therefore, a lender is assuming more risk loaning money to you than to someone who’s gainfully employed.
This changes when you’re working. Instead of their credit risk buzzers skyrocketing through the roof when they saw the student-version of you, you are now receiving stable income and, consequently, bear more financial responsibility.
For that reason, your interest rate will be lower as you will be seen as less of a threat to their credit.
Paying less interest in the long-run helps you to pay off your student loans much faster than you would have been allowed to if your interest rate hadn’t been decreased.
- Decide Your Own Repayment Term
In standard federal student loan cases, the borrower has a maximum repayment time frame of up to 10 years.
When you’re refinancing your student loan, you don’t have to stick to this time frame. This is the beauty of refinancing as well as part of the magic behind how to pay off your student loan balance: you can negotiate.
If your goal is to pay off student loans fast, you can settle on a shorter repayment plan with your refinance of 5 years or less.
Granted, this does mean that you will have to spend more money on your monthly payments. However, you’ll end up saving money in the long-run as you won’t be paying as much interest.
- Renegotiate The Terms Of Your Loan
Sometimes, you might not be too pleased with your existing loan-terms.
By refinancing, you can change certain terms into new ones that you think are more favorable to you.
For instance, some students end up getting loans that have a variable interest rate: in other words, their loan-interest rate is not set at a fixed percentage.
That can be a source of concern for quite a few people, especially if the interest rate suddenly jumps higher than what you’re capable of paying.
When refinancing, you can switch from having a variable interest rate to a fixed one.
- Fuse Multiple Student Loans Into Only One
Refinancing has the added benefit of consolidating all the student loans that you may have into just one.
Sometimes, if you have multiple loans, it can be a bit taxing to have to keep track of all of them.
By refinancing your debt into one loan, you’ll be ‘putting all your eggs in one basket’ so that you don’t run the risk of leaving one behind.
Step 5: Student Loan Interest Deductions & You
A huge part of the challenge in paying back loans is interest.
For students, interest tends to be a real killer since interest on student loans tend to be pretty high, with average rates going up to 7.60%.
Therefore, getting a reduction in your interest rate is always something worth considering.
There are three ways that you can get a reduction in your interest rate. We’ve already discussed one, which is to refinance your loan. Here are the other two:
- Automating Your Loan Payments
Several lenders, both federal and private alike, are providing debtors with an incentive to reduce their interest rate on loan payments: authorizing automatic deductions from your bank account.
The incentive usually pans out to be a 0.25% reduction in your interest rate, although it’s always best to contact your lender to verify if they do, in fact, offer this incentive and if so, the exact reduction.
Although it won’t be much, if you can find a way to reduce your expenses in any way, shape, or form, it’s worth the hassle.
Besides, setting up automatic payments can work to your benefit in the sense that you won’t end up accidentally missing a payment. Just ensure that you have sufficient funds in your account that can allow the payment to be successfully deducted.
- Getting A Loyalty Discount
If you’re lucky, your lender might actually be handing out loyalty discounts.
These types of discounts vary from to lender to lender . Be sure to get in touch with your lender to find out whether you’re eligible for one of these services.
That said, don’t expect a huge discount. Companies usually offer fractions of a percentage point as a reduction in their interest rate. Still, some sort of a decrease in your monthly payment is better than nothing.
Step 6: Making More Lump Sum Payments More Frequently
Just because you have a minimum monthly loan payment amount doesn’t mean that you can’t pay more than that.
Whenever you get the chance, go above and beyond the call of duty and factor that extra bit of cash that you’ve got into your monthly loan payment.
Let’s say you’ve just got some new money either from your tax refund or from your end-of-year bonus. The wise thing to do is to invest either part or all of that money into your loan payment.
If you do that, not only would you be reducing on the total amount on the balance of your loan, you’d also be reducing on its capitalized interest. That means that it’s a win-win situation either way you look at it.
Step 7: Milking Extra Payments For What They’re Worth
Putting that extra cash towards your monthly loan payment isn’t the only thing that you can do to help pay off student loans: you’ve got to make the most of them.
You do this by making your extra payments apply specifically to the principal balance on the loan, i.e what you’ve got to pay off minus interest and all other charges.
Depending on your lender, if you make an extra payment on your monthly bill, that extra money might be applied to something else, like cutting back on your interest payments or some other charge you’ve incurred on the loan.
That’s why it’s important to give specific instructions to your lender that any extra payment should be done to cut down on your principal balance alone.
This should always be your target: reducing the principal. When the principal is reduced, the amount you’ll owe on interest also goes down.
Step 8: Motivation With a Capital ‘M’
Consistency and motivation are two important factors that you need to have in order to pay off student loans fast.
Consistency in the sense that you need to be methodical and regular in your payments. Things do come up that may cause you to miss a payment every now and again. Nonetheless, don’t let it become a habit.
Moreover, you need to want it. There’s no way you’re going to clear yourself of any debt if you don’t desire to be free from it.
Combine those two feelings and let that be what drives you toward a debt-free life.
Step 9: Try Out Student Loan Forgiveness
Sometimes, when all else fails, we need a way out.
Such a way does exist that allows you to escape the horrors of student loan debt: it’s called “Student Loan Forgiveness.”
In short, this is a State program which absolves debtors from their debt.
If you are not financially capable of repaying your loan, you can consider applying for this program. But don’t bank on it.
Your chance of actually being successfully granted loan forgiveness is practically next to none.
Forbes reports just how bleak these prospects are, signaling that in 2018, out of the 49,699 applications received for student loan forgiveness, only 423 applications were approved.
Hence, student loan forgiveness is an option: it’s just actually getting it that’s the problem. But if you’ve run out of options, take the chance and apply. The worst that can happen is that you’ll be denied.
How To Pay Off Student Loans – Final Thoughts
In short: don’t let the widespread stories of former students struggling with their loan payments make you think that it’s impossible to clear yourself from debt.
Paying off student loans is 100% attainable.
That said, a huge part of it boils down to how much drive you have.
There are no two ways about it. You have to be consistent about whatever strategy you’re going to implement. Otherwise, your chances of clearing your student debt will be grim.
But as long as you stay steadfast to your strategy and make smart financial decisions which work in your favor, you’ll see just how quick you can get rid of those annoying loans.
Always remember that no matter how dark your student-loan skies might appear, there will always be a silver lining in those clouds that will help you see your way out your debt problems. Stay on the straight and narrow path of the strategies suggested above and you’ll be well on your way towards financial freedom.