Twenty-one years. In that amount of time you could pay off most of a mortgage or earn a nice chunk of money in your IRA for retirement. It’s also the average amount of time it takes for a college graduate to pay off his or her student loans.
When you’re dealing with student debt, this may seem all too familiar to you. Time can feel like an eternity when you haven’t actually been a student for two decades. Going to college enabled you to get a degree, enter a career and start earning an income. But when the average debt for the class of 2016 graduate is $37,172, even the most handsomely paid job can make it hard to pay down.
There are some steps you can take to reduce your debt load more quickly. You could refinance your loans, take on an extra gig for extra cash, or flee the country to escape your payments, which, apart from the last tip, are all good ideas.
You can also consider some of these creative hacks to chip away at your student loans more efficiently. While they won’t make your debt disappear, they’ll save you some much-needed time -- and money -- in the long run.
Tackle interest-only payments
Paying off interest while you’re still a student can stop interest from accruing and keep your debt balance down.
In this example, we used an average tuition balance of $9,410, with a 3.76 percent interest rate on your student loan. In that school year, you’d owe $353 in interest alone, or $30 per month. With each year in school, and each loan borrowed, try to consistently make payments just towards your interest, and by the time you graduate, most of what you owe will be your principal.
If you’re on a tight budget and can’t tackle any part of your debt until you graduate, there’s one more chance to make interest-only payments: your grace period. It’s the 6-month time frame immediately after graduation when no student loan payments are due, intended to give borrowers time to find a job and start earning an income.
During your grace period, follow the same principle: make optional interest payments when no money is officially due. Every cent you pay during this period will help interest from building up.
Take advantage of student loan discounts
Negotiating for a tuition discount can save you on college costs up front, but did you know you can also lobby for a reduction in your student loans?
Up until last year, borrowers with Wells Fargo-originated loans were able to apply for a discount through Amazon Prime; while that promotion has since ended, there are a few others to try through your lender:
Direct debit: Rate reductions from 0.25 percent to 2.5 percent are available when setting up automatic payments from your checking account
On-time payments: Make a habit of timely loan repayments, and you could qualify for reductions in your interest rate and principal in varying amounts
Graduation credits: Up to $750 off your loan principal is often discounted by lenders when you graduate
Loan forgiveness: For borrowers nearing the finish line, lenders may agree to forgive your loan when you’re down to your last five or six payments, or when your balance drops below $600
The Department of Education also grants interest rate discounts on Direct Loans up to 0.25 percent for auto-debited payments, and rebates up to 1.5 percent for on-time payments within the first 12 months of loan disbursement.
Pay your student loans bi-weekly
If there’s one rule about student loans to remember, it’s that interest will continue to accrue on your balance at all times, even if you’re in a period of deferment or forbearance. What borrowers may not be aware of is that your interest is front-loaded to your loan and accrues on a daily basis -- not weekly, monthly or annually. (Like any loan, interest is how lenders make their money.)
That means your interest gets recalculated every 24 hours. Even if you’ve been paying on time each month, you’re still fighting the effects of compounding interest.
To counteract this, try making payments twice a month instead of monthly. This doesn’t mean you’re paying double; rather, you’ll be splitting up your monthly payment into two. So, if you make a $500 student loan payment each month, you’ll make two $250 payments.
How does this hack help? When you pay monthly, you’d usually make 12 entire payments in a year, accounting for 52 weeks. Instead, you’ll make 26 biweekly payments, which accounts for 13 months -- an entire extra month’s worth of repayments.
One strategy for ensuring that you stick with a biweekly repayment structure is to make your payments each time you’re paid at work. If you get a paycheck twice a month, even better; setting up automatic payments with your lender for a select amount of money from each paycheck ensures that you stay on schedule and on top of your student loans.
Make your principal a priority
For any loan, it always helps to pay ahead as much as you can, not just to save on interest, but to pay down your principal, and your loan balance, as early as you can.
For instance, if your monthly loan payment is $235, rounding up your payment to $250 when your budget allows can really add up and make a difference after a while.
If you intend on paying more than you owe, notify your lender beforehand that you’d like the extra cash applied towards the principal, not towards your next payment. It may not seem like it makes much difference where the money goes, but it does. If you let your lender use it towards next month’s payment, the additional cash won’t make as much of an impact because it’ll go towards paying interest, which will have accrued by then.
But instruct them to use the surplus payment amount towards your principal, and you’ll whittle down the primary debt you owe. Every $5, $10, $20, $25 to your principal won’t be diminished by growing interest -- it’ll reduce your debt by the exact amount you specify to your lender.
Use credit card rewards to pay down debt
Building credit is an important financial step for any college student, since you’ll need a solid credit history if you ever want to borrow money for a car, a house, or other loan. The best credit cards specifically designed for college students come with low fees, bonus rewards for good grades, and best of all, cash back on the purchases you make.
Some popular choices are the cashback-equipped Discover it for Students and CapitalOne Journey Student Rewards credit card, and Citi’s ThankYou Preferred Card, which pays card holders with special points on their spending.
What do these cards have in common? Apart from being good credit builders, the rewards you earn can be used towards paying your student loans. Start building cash back and points when you’re still enrolled, and use them towards your payments, either when you’re still enrolled or after you’ve graduated. It’s like free loan payments with the benefit of establishing credit at the same time.
If you’re a new student or recent college grad, remember to never exceed your credit limit and pay your balance in full at the end of each billing cycle. Using your credit card responsibly helps avoid going into credit card debt that can make your student loan debt even harder to manage.
Put financial smarts to the test
There’s nothing wrong with paying off your student loans each month by the due date, for the exact amount you owe. But it’ll take years, even decades, to reach the finish line—and cost you more in interest along the way.
Take some of the above hacks as a chance to allow you to take control of your student loans and get out of debt faster.