Most people need to apply for student loans to afford to pay for college. For one thing, college tuition rates have skyrocketed over the last decade. The average student pays a minimum of $10,000 per year for tuition, which means they will pay around $40,000 to earn a four-year college degree.
Tuition is not the only expensive college expense. You also must consider the high costs of books and room and board if you live at the college. That $10,000 per year could quickly increase to $20,000 or $30,000. Most young students cannot afford to pay these costs with a loan.
Federal Student Loans
The default student loan option is to seek a federal student loan, which is a loan backed by the government. The advantage of a federal student loan is the generous fixed interest rates and reasonable repayment terms and conditions. You don’t have to start making payments on the loan until after you graduate or leave school.
Some federal loans come with subsidies where the government covers the interest payments while you actively attend school. Unfortunately, not all federal loans have subsidized interest payments, so you could end up with an unsubsidized student loan that continuously accrues interest while in school.
You may qualify for the government’s loan forgiveness program if you meet the eligibility requirements, such as working full-time in the public sector and making enough monthly payments on your federal loan. If approved for the loan forgiveness program, the government will pay off some or all your remaining student loan balance.
Private Lenders
You can always receive a personal student loan from a private lender to pay your college tuition and other fees. Remember that private lenders charge much higher interest rates than the federal government. You also should not expect the repayment plan terms to be anywhere near as generous as the government’s terms. There certainly will not be any loan forgiveness.
The Top Student Loan Repayment Strategies
Do you want to know how to repay your student loan faster? Here are five strategies that can help you get started:
1. Choose the Standard Repayment Plan
Most students have a standard repayment plan for their federal student loans. It is a fixed 10-year repayment plan with lower interest payments. College graduates with stable finances and who can afford higher monthly payments can repay their student loans under this plan.
On the other hand, many recent college graduates struggle with the standard repayment plan because they don’t earn enough money at their new jobs to afford those payments. Try to earn as much income as possible to afford these payments so that you can pay off your loan within 10 years or less.
2. Income-Driven Repayment Plans
The government offers “income-driven repayment plans” to students who struggle to pay monthly student loan payments. An income-driven repayment plan can lower your monthly payments by factoring your family size and income. If you qualify, it could significantly relieve your student loan debt.
You must typically pay 10% or more of your monthly discretionary income toward your student loan repayment. Since you make lower monthly payments, paying off your loan will take longer than the standard 10-year term. Income-driven repayment plans can have terms exceeding 20 years in some cases.
However, you may qualify for loan forgiveness if you have successfully made 120 qualified payments or more. That would eliminate the rest of your debt obligations if you meet the loan forgiveness eligibility requirements.
3. Employer Repayment Assistance
Check with your employer to see if they offer student loan repayment assistance. Some employers do. Most people don’t realize that employers provide this benefit until they learn about it from their co-workers or managers.
Employer repayment assistance is an underrated feature of many employer’s benefits packages offered to their employees. It is a program where your employer makes payments toward your student loan to help you reduce your loan debt balance. Since the employer is enjoying the benefits of your skills and talent as a college-educated worker, they will offer to assist you with the payments in exchange for your work in the company.
4. Make Bi-Weekly Payments
Choose to make bi-weekly payments rather than monthly payments toward your student loans. Biweekly payments mean you make half a loan payment every two weeks rather than a full loan payment every four weeks. That comes out to approximately 26 half-payments annually.
Why does this matter? It allows you to pay down your student loan balance faster to lower the interest payments. Even though the total costs per year equal the total payment amount, it still lets you reduce your loan balance sooner each month to enjoy a slightly reduced interest charge.
5. Make Bigger Monthly Payments
Can you afford to make more significant monthly payments toward your student loan? Unless you want to wait 20 or more years for the government to forgive your loan, you could start making more significant payments to reduce the loan balance faster.
Making bigger monthly payments will lower your interest charges and get you debt-free sooner rather than later. The only challenge is freeing up enough discretionary money from your income to devote toward these payments. Not everyone can devote more than 10% or 20% of their income towards making significant student loan payments.
If this sounds like you, try developing multiple sources of income to make more significant loan payments. Perhaps you could do some gig work on the side to earn supplemental income so you can afford to make these payments.
Conclusion
Students are better off using federal loans to pay for college because they offer lower interest rates and possible loan forgiveness for those who qualify. A standard repayment plan will pay off the loan faster. Still, those who cannot afford the payments can choose the income-driven repayment plan for lower costs.
If paying your loan off fast is what you care about, earn as much income as possible to make your payments under the standard repayment plan. That will be your best bet for success.
