Furthering your education can be a great career booster for your future, but as many a student knows, it can also be expensive. The average tuition for a four-year private college for the 2017-2018 school year is $34,740, and for four-year public colleges (out of state) is $25,620.
Loans from both private and federal sources can be the easiest way to cover these costs, but they can also end up haunting your future. According to the Consumer Finance Protection Bureau (CFPB), it can take up to 30 years to pay off student loan debt – but what if you could do it in ten?
Paying off debt related to your education in just a decade is possible, but you will have to stay on top of your financial activity. The amount you save in the long run will be well worth it.
But First – Know What You Owe
One of the difficulties in getting a hold of all that you owe in student loan debt is that student loans can come from different places and different types of lenders. Federal student loans are offered to undergraduate and graduate students, and parents of these students, while private student loans can be taken out for any education.
In addition, you likely received a new loan for each year or semester that you were in school. If you attended a four-year college, you could have four to eight separate loans that you need to repay.
Gather together all of your loan amounts, their interest rates, all of your lenders’ information, and the costs you are currently paying towards your loan, so you know the total debt that you owe.
Strategize A Budget
Living with a budget can be a great way to save money every day, but if you’re aiming to pay off your student loans in ten years, a budget is essential. Make life easy for yourself by using a budgeting app, so you stay on track every day.
Take the amount that you currently pay towards your student loans, and find a way to boost that number. Your budget can help you identify areas where you have extra cash or funds to put towards your loan payments, and will give you a tangible strategy to make sure you stick with your new payment structure. If you’re spending a lot on restaurants each month, start staying in and move that saved money to your loans. The same goes for everything from shopping to your rent payments – where can you save money to pay off debt?
You’ll want to continue to increase your payments over the years to reduce your principal and interest accumulation. Your budget will change over these years, but your goal should be to find as much money as possible to put towards your loans.
Target Higher Interest Loans First
Once you understand all that you owe and have found some extra cash to boost your monthly payments, you’ll want to hit the highest-interest loans first, so you avoid as much accumulating interest as possible. Federal student loans typically have interest rates of 4.45% for undergraduates and 6-7% for graduate students, so you could keep making your payments on each loan, and use all of your extra cash to put more towards your higher-interest loans. The faster you can knock that loan out, the more money saved in the long run.
From there, follow the same strategy with each of your loans, so the one with the lowest rate is the last you focus on paying off entirely.
Consolidate Student Loans
If you have multiple student loans, an option that can help you reduce your rate and pay off your loans faster is to refinance them into one new consolidation loan. You’ll only have to focus on paying off that sole debt instead of multiple ones, and when you refinance, you may also qualify for better interest rates depending on your finances and how you’ve handled your credit.
However, there is a caveat when it comes to consolidating student loans: when you refinance, you may also be extending the overall term of your loan. Your monthly payments may go down, but that is because they are being spread out over a longer term. Find a lender that won’t penalize you for early repayment so you can come up with a strategy that doesn’t require extending your payment period and interest accumulation.
Pay Off Principal, Not Just The Interest
The problem with only making minimum payments is that you are basically covering accumulating interest costs and not making a dent in your principal. This is why student loans can take so long to pay off, and avoiding this trap will help you save money and get rid of your loans as quickly as possible.
Paying more than the minimum amount of loans will help you cut into your principal, which will reduce your accumulating interest, meaning you pay far less over the life of the loan.
See If You Qualify For Student Loan Forgiveness
There are some opportunities for partial student loan forgiveness if you work in a particular setting or a public service capacity. You’ll typically need to work at a qualifying location for a set period of time – usually ten years – and can then apply to have the remaining balance of your loans forgiven. The critical thing to remember about student loan forgiveness is that you won’t be off the hook for all of your education costs – you’ll have to pay the bulk of them before you can qualify to have the rest forgiven.
Pick Up A Side Hustle (Or Ten)
According to the Bureau of Labor Statistics, the average salary for Americans age 25-34 is $41,288 for men and $36,660 for women. For many students, that amount is less than the cost of one year of college. It’s easy to see why so many young people are burdened by student loans early in their careers, and how paying off debt can continue to haunt them even decades after graduation.
To avoid this trap, pick up a side job or two that will help you boost your annual income, allowing you to put more of your funds to your loans now and freeing up your future. For instance, let’s say you pick up some babysitting work, and you receive around $50 for a few hours of work. Work just ten nights a month, and you’ll have an extra $6,000 in annual income, which can go a long way towards reducing your overall debt.
Easy side jobs that you can do right now include things like:
- Pet sitting
- Taking online surveys
- Selling wares on Etsy or similar sites
- Freelance writing or design
- Selling plasma
- Selling unwanted items
- Monetizing your hobby
Stop Increasing Other Debts
If you’re already holding tens of thousands of dollars in debt, why would you want to add more on top of that?
However, the reality of life is that credit allows us to purchase the things we need, even if we don’t have the money for it at the moment. If your refrigerator breaks down and you don’t have emergency funds to cover the cost of a new one, you’re not going to live without a fridge for months until you can save money for one. That’s where using credit becomes a lifeline.
But with that other debt, that single purchase could set back your student loan repayment strategy. Interest rates for student loans can be around 7% on the high end, but that’s nothing compared to the average credit card interest rate which is double that amount.
You won’t be able to stop spending entirely during the time you’re paying off debt, but you can be mindful of it. If you don’t have an emergency fund, starting putting extra change and spare dollars into a jar every day, and you’ve begun to cover any surprise costs down the road.
If you’re serious about paying off debt related to your education, start taking steps now to reduce the amount of time it takes to pay off your student loans. With a proactive attitude, you’ll be able to devise a strategy that helps you reach your goal of getting rid of those student loans in just ten years.