Have Student Debt? 10 Ways to Pay it Off and Save Money

As a recent law school graduate with roughly $85,000 in student loans, I share a similar burden as more than 40 million Americans...

Student Loans & Debt

As a recent law school graduate with roughly $85,000 in student loans, I share a similar burden as more than 40 million Americans. Estimates show Americans collectively owe more than $1.2 trillion in student debt. This means there are a lot of people asking themselves: “how in the world will I pay my student loans?”

Tackling your student debt can be a daunting task, particularly in today’s job market. The good news is that you have options! Whether you’re looking to lower your current interest or have monthly payments you can’t meet, you’ve come to the right place.

1. Chip Away While You’re Still in School

If you are currently in school, you may want to start making interest payments before you graduate. Unsubsidized loans like the Stafford loan begin accruing interest immediately. To make matters worse, the accrued interest is then capitalized after the six-month grace period following graduation, meaning that it is added to the principal balance and interest then starts to accrue on the new, larger balance.

First, do you have some savings that you could use? Could you take on a part-time job in the school year or during breaks? There are jobs that can pay well while providing the flexibility needed for a full-time class schedule. Paying off debt may seem like a low priority at this point in your life, but doing so will have significant long-term benefits.

2. Set up Auto Pay

Chances are you’re already enrolled in auto pay for your credit card, utilities, and other bills, so why not your student loans? Not only is it much more convenient, but you can also save money every month by having your payments automatically debited from your account.

It took me 10 minutes to sign up and I could end up saving about $1,500 over 10 years. Where else can you make that kind of money in less than 5 minutes? The most common loan discount is an interest rate reduction of 0.25%. I encourage you to contact your provider and ask if they offer it too.

3. Standard Repayment

Seems simple, but it can be very tempting to kick the can down the road. Making the minimum payment should be a top priority. Set that as a goal and find ways to cut expenses in other parts of your daily life. Making the minimum payment over the term of your loan will save you money, build your credit, and help you become debt free sooner.

4. Refinancing

Refinancing your loan with a private lender can result in a reduced interest rate, lower monthly payments, and shorter time to pay off your student loan. Borrowers with especially high-interest rate Federal loans, like PLUS loans, may benefit the most from this alternative.

Consider this, for every $50,000 of debt, a 1% reduction in interest rate will save you roughly $3,000 in interest over the life of your loan. Depending on how much debt you have and how low you can get your rate, you can be looking at big bucks! Visit our student loan search to see if you qualify for a low cost loan from one of our various lending partners

When evaluating whether to refinance, keep in mind that some private lenders don’t provide the same borrower protections such as Public Loan Forgiveness or the Deferment and Forbearance options.

5. Income Driven Repayment

This is a great alternative for those who do not have the ability to make the minimum monthly payments in full each month. This option reduces your monthly payments based on your income, ultimately extending the life of the loan beyond the original 10-year term.

The result is that you may end up paying more for your loan over time. That being said, this option frees up cash each month, and if you make your qualifying monthly payments, the balance on your loan will be forgiven if you have not repaid your loan in 25-years.

6. Deferment/Forbearance

These two options are similar, but have some key differences.

Deferment = a period during which repayment of the principal and interest of your loan is temporarily delayed.

  • You must qualify & submit a request.
  • The government does not pay the interest on your unsubsidized loans (or on any PLUS loans), but may on other loans.
  • You will pay more over the life of your loan.

Forbearance = a period of time when your loan servicer allows you to stop making payments or reduce your monthly payment for up to 12 months.

  • Oftentimes the decision by the loan servicer is discretionary. There are a few times when it is mandatory.
  • Interest will continue to accrue on your subsidized and unsubsidized loans.
  • You will pay more over the life of your loan.

7. Forgiveness

I’m sure this option is the one that gets you most excited – an easy way to get rid of your student debt does sound nice. Don’t get ahead of yourself just yet, because the circumstances are particularly limited.

The most common programs are the public student loan forgiveness and teacher student loan forgiveness programs. Both programs have their own set of rules and strict guidelines, but if either of those descriptions sounds like you, it may be worth looking into. It should be noted that there are other limited exceptions for forgiveness, as well.

8. Consolidation

The government will allow you to consolidate your student loans without paying a fee, which may reduce your monthly loan payment and simplify the repayment process.

The interest rate on the new consolidated loan is a fixed interest based on the weighted average of the interest rates on the loans being consolidated. The catch is that even if you end up with a lower interest rate after consolidation and more manageable payments, the longer payment term may result in you owing more over the lifetime of your loan.

9. Ask Your Employer to Help

As part of a broader workplace trend, employers have started to offer unique perks aimed at recruiting and retaining new employees. One of the new benefits is student loan repayment assistance…fancy that!

Ask your HR representative whether they have an existing program or if they are willing to adopt one. Companies like Tuition.io allow employers to provide these benefits to select individuals, sparing them the hassle of implementing a firm-wide plan. Instead of a cash bonus, opt for the loan repayment. May sound boring now, but you will thank yourself later.

10. Invest Instead of Pre-Pay

The idea behind this is simpler than most people think… Will the return on an investment be greater than the interest you are paying on your debt? Let’s say you have $10,000 to put towards your loan balance, and let’s assume you are paying 5% annually. If you apply that towards your loans, you will save $500 a year in interest. However, if you can get a 7% return or higher elsewhere, you can make $700 or more a year, allowing you to apply the extra cash towards your payments.

Important: This option should only be considered if you have the ability to pay above and beyond the minimum monthly payment. Even then, I recommend you weight the benefits, as alternative investments such as the stock market and real estate are inherently risky.

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