Full disclosure: Like many of our readers, I’m a student loan borrower. And even though I’m only a few years into my repayment for $23,000 of student loans – I’m already sick of it. Aside from student loan payments sucking up much of my extra income, seeing my monthly student loan bill is a constant reminder of just how much farther I have to go before I’m debt free. Seeing that far-distant debt free date is aggravating, so I think I speak for many when I say: ARRGH.
But there is a bright side to regularly checking in with my progress timeline. Monthly payments and milestones are also incredibly effective motivators. Yes – seeing the timeline of repayment can feel frustrating, but it also means that I’m motivated to boot these payments for good and I’m ready to go about it as efficiently as possible.
I want you gone, student loan debt! It’s only a matter of time…
Realizing the longevity of your debt repayment is a challenging fact to face but can also help you organize your plan of action so that you can finish paying off your student loans as quickly as possible. After all, I have other things I’d like to be paying for – travel, dance classes, my retirement. So here are the tricks and tips to focus your repayment and help rid the inbox or mailbox of loan statements as quickly as possible!
Take advantage of any interest reduction deals
When you first begin your federal student loan repayment you’ll usually be offered a few options that are incentivized by interest rate reductions. For instance, if you opt for payments to be automatically debited, then you’ll be eligible for a .25% interest rate reduction. Take it! This will directly impact how much you pay in interest. Even a small reduction will have a substantial impact on your overall plan. If the terms are feasible for your repayment plan, then take advantage of these opportunities.
On the flip side, opportunities to refinance your student loans are on the rise. While the possibility of reduced interest rates is appealing, make sure that you’re not entering into an agreement with a variable interest rate that could potentially climb above your current rate. Also to be noted – when you refinance a federal student loan with a private lender you will lose out on the attached protections (forbearance, deferment, alternate repayment plans), so really weigh the ultimate benefits of a lower interest rate versus the potential protections.
Include student loans as a part of “paying yourself”
Ever heard the phrase “pay yourself first”? That means putting money into your bills and your financial requirements right when you deposit your paycheck rather than drawing from it as the month goes on and simply estimating that you’ll have enough. Make your student loan repayment a regular part of your financial schedule and include them when you pay yourself first. This will allow you to effectively budget and readjust your repayment and also prevent you from overspending.
Allocate your payments correctly
When paying your monthly bill, make sure that your money is being applied to the right part of your payment. Some servicers default any excess payment towards future bills rather than paying down the current principal. It’s a hidden tactic that could end up costing you quite a bit. To prevent this, you will have to make sure that any extra payment is paid towards your balance rather than being pushed for future payments. When asked, choose “do not advance due date” or similar options that make it clear that you do not want your money to be applied to future payments.
Set up bi-weekly payments
Bi-weekly payments can save you an incredible amount of money over the life of your loan. It works like this: You take your monthly payment, divide it by 2, take the new number and pay every 2 weeks. Because the year is made up of 52 weeks, you’ll be paying 26 “half” payments (13 payments total) instead of paying 12 full payments in the year. This works out to an extra payment each year, which can do wonders over the life of your loan. You can even automate your bi-weekly payments in order to ensure that you never forget or miss a payment.
Quick tip: When you use bi-weekly payments, you’re essentially adding an extra payment into your yearly timeline of payments. To see the impact you can use our bi-weekly payment calculator.
Increase your payments incrementally
You’ll end up paying much more on interest payments if you stick to paying the minimums each month. That being said, upping your monthly payments by a large sum can leave you feeling stretched during the month and consequently make you feel that it’s impossible to increase your payments. So instead of immediately jumping in full force, experiment with upping your student loan payments by a small increment each month. 200 dollars more each month might sound too hard but 10 dollars might not. In this way you can find the “sweet spot” of your payments without feeling overly frustrated or stretched. To help you calculate the impact of even a few extra dollars each month, you can punch the numbers and see the impact of these measured adjustments.
What To Do If You’re Feeling Stuck
Federal forgiveness plans
If you have federal student loans, then you have the opportunity to benefit from a loan forgiveness program. Some of the most popular programs are geared towards teachers and public servants, but all require you to apply and follow the terms for the duration of the repayment plan. You’ll have to be on top of the paperwork and maintain the requirements to qualify, though the effort is worth the potential amount to be forgiven. To learn more about how to apply for the program, read our post on how to apply.
Explore alternatives when facing financial hardship
If you simply stop paying your student loans you will default and face serious penalties. If you’re facing financial hardship, you do have options and should seek all opportunities to get back on track. Remember that you can always apply for deferment or forbearance, which can give you some breathing room.
Student loan debt doesn’t just go away if you choose to stop your repayment, unfortunately. That’s why halting payments will only prolong your repayment and result in negative financial repercussions. If you’re struggling to make your payments you should talk to your loan servicer and work together to find a repayment plan that makes sense for your circumstances. For more information on default, visit the Federal Student Loan website. Beyond this resource, you can check out our student loan debt resource center for more great tips and tricks!
If you’re lucky enough to be reading this while you’re still enrolled, or even thinking about re-enrolling in grad school, here’s one last tip: start paying when you’re in school! This is beneficial in a few ways. Not only do you get a head start on paying off your loans, you also begin forming valuable habits that will make the transition to making payments after college a little bit less jarring.
Making payments while still enrolled in school is an option that’s offered most clearly with private student loans (in fact, most require that you begin your repayment while in school via interest payments or a minimum required payment) but if you have an unsubsidized federal loan then you also have the option of making interest payments while still enrolled. This isn’t the default option so you will have to opt in and contact your lender in order to begin these payments.
Student loans have become an increasingly controversial topic in the news, what with the high delinquency rate and the repayment hurdles set by loan servicers. But they still remain one of the most viable options for those who want to pursue higher education but lack the funds to do so. In many cases, taking out a student loan creates opportunity for those with lower incomes and allows them to benefit from higher education.
But what if student loans aren’t being used for just educational expenses? The Wall Street Journal recently published a revealing article spotlighting what could be an alarming trend: borrowers taking out student loans with the sole purpose of paying for living expenses like bills or groceries. And it doesn’t appear to be just for the occasional pizza to fuel a borrower towards graduation – some of the loans are being taken out without intent to attain a degree.
Here’s what’s happening
In some instances, individuals are enrolling in school with the singular purpose of obtaining student loan aid. The reasoning may be that they don’t have enough money to cover their bills and other type of credit are not available to them – either because of previous late payments, insufficient credit history, or a number of other reasons. The lower interest rate attached to federal student loans makes these loans an appealing alternative to high-interest credit cards or payday loans.
The problem is that, instead of using the student aid for educational expenses or for paying housing and food costs while earning a degree, the money from these loans is being used for bills and other living expenses like groceries or even cell phone costs with no intention of ultimately getting the degree.
This creates a dire situation for the people taking out the loans. They understandably feel caught between a rock and a hard place, which is why they take the loans out in the first place. Many of the individuals interviewed in the Wall Street Journal article said they felt these loans were necessary to make ends meet. But unfortunately the loans – while helping in the short run – will often make their lives much more complicated in the long run and could have lifelong effects on their finances.
Why taking out excessive student loans hurts your finances
Student loans can pose profound problems to young people struggling to get by on limited incomes. For one thing, confusing repayment terms make it challenging to repay loans in the most efficient manner. Interest accumulates monthly, meaning that no matter how low the interest rate might be, you will end up paying more (possibly much more) than the initial amount of the loan.
In addition, student loans are very likely to stick with you for the long haul, because they are much harder to discharge in bankruptcy than other types of debt. This puts those who may already be financially vulnerable in a precarious situation. By taking out these loans, you aren’t stabilizing your finances but rather delaying the inevitable – the principal balance owed that will be owed down the road along with any interest that’s accumulated. It’s a money shuffle that could be dangerous for your long-term financial health.
A cautionary tale for student borrowers
In some ways it’s no wonder that young people who might never have planned to finish their schooling in the first place are taking out student loans. A recent study quoted in the Wall Street Journal article said that “schools disbursed an average of $5,285 in loans each to more than 42,000 students who didn’t log any credits at the time.” In other words, they apparently didn’t even require proof of current enrollment.
With the level of student loan debt skyrocketing (over 1 trillion is now owed nationwide) this newly revealed trend is certainly troubling. The ease of obtaining student loan aid and the loose requirements needed in order to take out high debt for educational expenses are two of the main concerns for those currently hoping to see change in the student lending system. Student loans usually don’t require a credit check (or the lender only requires a co-signer’s credit check) so the borrower may be offered higher loans than they can realistically pay back within their financial circumstances.
Both the schools and the lenders often have an interest in handing out the loans to anyone who applies, because the federal government in many cases backs the loans – ensuring that the school and the lender can be confident of getting paid back regardless of what happens to the borrower in the long run.
It’s essential that anyone taking out student loans understands the true function of these loans – and the financial repercussions that occur once they’ve been taken out. What you borrow, you will pay back – with interest. Taking out more than you need means that you’ll be paying interest on a principal balance that’s higher than necessary. This can (and often does) present a huge challenge for future financial goals and can put you in a scary financial place.
Remember – the responsibility for taking out loans remains on the borrower and as the article cites, “even when schools suspect students are over-borrowing, they are restricted by federal law and Department of Education policy from denying funds.” The amount you’re offered, or the amount you choose to take out doesn’t necessarily reflect the amount that you need or the amount that’s in your best financial interest. Before signing up for debt – take a moment for a gut check. Is it a number that you can realistically assume financial responsibility for? If not, it’s time to reassess.
Whether you’re a fresh grad or you’ve been in the workforce for a long time, student loans are a financial burden. And more and more people out there are facing student loan debt these days. Student loans now top an astonishing $1 trillion in the total amount owed, and that number is increasing every day.
With so much at stake, it’s vital that you protect your finances from being negatively impacted by student loans. Since they are the one type of loan that cannot be discharged in bankruptcy, you’ll want to stay on top of the payments as much as possible.
Here are a few tips for how you can keep student loans from becoming an overwhelming obligation.
Pay On Time
One of the few good things about student loans is that they can help you improve your credit score. Of course, in order to do so, you’ll need to make your payments on time. The easiest way to do this is to automate your payments so that you have money transferred directly to your student loan accounts whenever you are paid. Set up automatic withdrawals from your bank account, and you’ll never miss the amount, as you’ll be living on what income you have after you’ve already made the student loan payment. This also gives you the peace of mind of knowing that your student loan payments are taken care of. You can always log in to your account online to double check that the payments have gone through.
Over time, you’ll see your principal decrease and your credit score improve. When you have the money to do so, pay off more than your monthly payment. You’ll see the amount owed go down at a faster pace.
Student Loan Forgiveness
In certain jobs and situations, you can have your student loans forgiven. In fact, as many as 1 in 4 Americans may qualify. Many of these forgiveness programs only work if you took out student loans directly from the government. If you took student aid from a private lender, these programs will not help you. They usually require years of payments before they are forgiven, so they won’t work if you need to have your loan forgiven quickly.
Your profession makes a big difference in whether or not a student loan forgiveness program can help you. If you work a public service, government, or non-profit job, then you can apply to have the rest of your loans forgiven. There are certain conditions that you’ll need to meet, including making 120 payments since 2007. You can check here to see if you are eligible for forgiveness.
You may also be eligible if you’re a teacher. In the Teacher Loan Forgiveness Program, teachers qualify to have up to $17,500 of their Stafford or Perkins loans forgiven, as long as they work in at designated low-income elementary or secondary schools.
We’re tired of hearing about it. We’re tired of thinking about it. And we’re certainly tired of paying it. What’s this “it”? Student loan debt. Yeah. I know… I want to take it off the roster of topics too. But regardless of the over-saturation of student loan debt (or maybe because if it) it’s a problem that’s going to stick around for a while.
If you’re at your wits end then it’s time to get rid of your student debt… as quickly as possible. Here are a few key ways to reframe the way you approach your student loan debt to inspire you to get rid of it even faster:
Make peace with your debt
The dissatisfaction surrounding student loan debt has never been higher… and for good reason. Student loan debt sucks. Accumulating high debt at such a young age feels limiting and frustrating because it is. But if we were to remain focused on that fact alone, then we’d never get past shaking our fist at our loan statements. In order to place your full attention on the repayment and financial empowerment aspect of repayment then it’s essential that you make peace with your debt.
Quick tip: Face student loan debt head on, acknowledge the reality of the situation, and then optimize towards scaling the obstacle.
Visualize your “after debt” goals
Assign value to the journey by defining a goal that you want to achieve. Treat your payoff date as something more tangible than just a day on the calendar.
This could be you at some lovely, snorkeling destination!
Push yourself to inhabit the mind space of success. Really use your imagination here… where will you be, how will it look, what kinds of pressures will be relieved without that student debt? Wanting to be debt-free for the sake of being debt-free has it’s own merit but take it one step further and pinpoint the details as to why you want to be debt free, and what you’ll do when you’ve achieved that financial freedom.
Quick tip: What will you do after you payoff your student loan debt? Travel more? Eat out without guilt? Give up a side job? Just… relax?
Measure your progress
One of the best ways to stay in student loan debt for as long as possible is to simply throw money at it every month without actually understanding where your money is going. If you don’t know how your money is working for your repayment then you have no real gauge of any leaks or cracks in your plan. For instance, paying minimums will keep you in debt for much longer than if you pay above. Therefore, if you simply pay the suggested minimum that’s attached to your lender statement you’ll be taking the slow route. When you see, however
Quick tip: Visuals are powerful tools in repayment. If you see a downward trend to your repayment, you’ll be more likely to feel frustrated by any changes that cause the line to go up again.
Reward your milestones
If you went on to study at an institution of higher education than you likely experienced 3 separate graduations… one for middle school, one for high school, and one for college. Imagine if everyone just celebrated one graduation? That would be quite a long stretch before there was cause for a celebration despite the many accomplishments that made up all those years. Your repayment can be considered a similar type of lengthy goal which means that it should be punctuated by rewards. It doesn’t have to be a grand reward – no helicopters for making a monthly payment.
Quick tip: For many, repayment is a long-haul. Break up the repayment journey by rewarding yourself incrementally. Without acknowledging moments of success, you won’t feel like you’ve made forward motion in your repayment.
Treat student loan debt as something more than “money owed”
Regardless of what your feelings towards your debt it’s important to attach more meaning to student loan debt than simply money owed. If you don’t give it more purpose then it’s easy to become fixated on your frustration rather than taking the proper steps to get rid of it. Your debt, however grand and frustrating it is, doesn’t define you. What you’ve learned, how you apply it, and how you continue crafting your future does. Don’t give student loan debt the ability to derail energy that you can utilize towards developing your unique sense of self.
Quick tip: Student loan debt numbers have reached the tipping point in regards to empathy. It seems like everyone has it, everyone is upset about it and by default that means that most people are over-saturated with information about it. Give it more meaning than regret or frustration.
If nothing else, understand the impact of compounding interest
For the love of cookies, put “understand compounding interest” at the top of your student loan debt “to-do” list. Seriously, it will only do you tremendous good to know exactly how much you’re paying in interest on a daily basis. Many people aren’t really aware of just how much they’re paying in interest and in the case of student loan debts, aren’t aware of how much interest they’re paying on a daily basis.
This guest post comes from our friends over at SoFi, an innovative marketplace that connects alumni borrowers and investors for refinancing private and federal student loans.
If you’ve borrowed student loans to invest in your education, you know that paying interest on those loans is simply part of the deal. But while “interest” can seem like an abstract notion when you first take out loans, over time it becomes a force to be reckoned with – particularly for the many MBA, law, and med school grads with six figures worth of education debt to repay.
For example, a borrower with $100,000 in student loan principal at a 6.8% weighted average interest rate and a 10-year term will pay about $38,000 in interest over the life of the loan. And that’s if they make every payment on time.
Paying interest on student loans may be unavoidable, but there are a few common mistakes that cause some borrowers to pay more interest than they need to. Read on to find out how to prevent these blunders from affecting your bottom line.
Mistake #1: Using forbearance when it’s not absolutely necessary
Most federal loans and some private loans will allow borrowers to use forbearance to temporarily reduce or suspend payments, but in most cases interest continues to accrue while payments are on pause – which means that the more you use it, the more interest you’re on the hook for in the long run. Here’s what happens when the borrower from our above example puts loans into forbearance for one year:
Before: $100,000 principal, 10-year term, 6.8% interest rate
After: 12-month forbearance period 
Bottom line: If your goal is to minimize interest, use forbearance only in cases of extreme financial hardship – and resume regular payments as quickly as possible. You can use this Forbearance calculator to do the math on your own loans.
Mistake #2: Unnecessarily extending repayment period
For those with federal student loans, federal loan consolidation allows borrowers to combine two or more eligible federal loans into just one loan, streamlining your monthly bills. When you consolidate, you’re typically given the option to lower your monthly payment by extending your repayment period – which means those smaller bills can come at a big price in the form of total interest. See how extending the payment term from 10 to 30 years would make our hypothetical borrower’s interest skyrocket:
Before: $100,000 principal, 10-year term, 6.8% interest rate
After: Extended repayment period to 30 years through consolidation
Bottom line: If you want the streamlining benefits of consolidation but don’t need the drastically lower payments, you might consider trying to refinance instead (see Mistake #4 below). You can use this consolidation calculator to do the math on your own loans.
Mistake #3: Not prepaying when possible
All education loans, whether federal or private, allow for penalty-free “prepayment”, which means that you can pay more than the minimum or make extra payments without incurring a fee. Here’s how adding an extra $100 per month would affect our borrower’s bottom line:
Before: $100,000 principal, 10-year term, 6.8% interest rate
After: Prepay an additional $100 per month
Bottom line: Whether it’s increasing your monthly payments when you get a raise or putting half your bonus toward your loans each year, every little bit helps to drive down total interest. You can use this prepayment calculator to do the math on your own loans.
Mistake #4 Neglecting to explore refinancing options
One of the best ways to stick it to your student loan interest is to refinance your loans at a lower interest rate. This option is typically available to borrowers who have a solid financial situation – for example, a comfortable income-to-debt ratio and a good credit score. However, before refinancing federal loans, you should check to see if you qualify for any forgiveness programs (public employee and teacher are the big ones). These benefits don’t transfer to private lenders when you refinance.
Note that when our hypothetical borrower refinances (keeping the same repayment period), not only does he save on total interest, but his monthly payment goes down as well:
Before: $100,000 principal, 10-year term, 6.8% interest rate
After: Refinance at 5.8%, 10-year term
Bottom line: Refinancing can help eligible borrowers take a big bite out of total interest. Not sure if refinancing is right for you? You can get more information about refinancing here. Or check out the ReadyForZero Student Loan Resource Center. Remember, if you take the time to evaluate your options and make a thoughtful decision, you’ll arrive at the best outcome.
Founded in 2011, SoFi supports 4,500 members and has funded more than $450,000,000 in loans, with an average borrower savings of $9,400. SoFi average borrower savings assumes 10-year student loan refinancing with a weighted average rate of 7.67% and a loan balance of $86,000, compared to SoFi’s median rate of 5.875% (with AutoPay).This advice is of a general nature and does not take into account your specific objectives, financial situation and needs. Before acting on this advice you should consider its appropriateness given your own circumstances.
“Total interest” includes both interest accrued and unpaid during forbearance ($7,015.99) plus interest charged on the new principal amount after forbearance ends ($40,769.23). Compound interest accrued on $100K during 12-month forbearance is $7,015.99, which is capitalized, or added to the principal, at the end of the forbearance period.