71 percent of college graduates in 2012 had student loan debt, according to the Institute for College Access and Success’ Project on Student Debt. The average debt load for these grads was $29,400, up from $26,600 in 2011. Essentially, the amount of debt is rising almost as quickly as college tuition and fees.
Nearly $30,000 in debt is quite the graduation gift, isn’t it?
Just like your mortgage, auto financing, credit card debt and other loans, the faster you pay off your student loans, the more you’ll save in interest and the more payments you can knock off the end of your repayment schedule. Here are a few ways that can help you escape the burden of higher education debt months or even years early.
Know Your Loans
Most students who graduate with significant debt have borrowed from multiple lenders. It’s important to have a firm grasp of how much you owe each lender, and the best way to pay off each loan. For example, federal student loans generally have more payment options than private student loans. Also, loans with the highest interest rates should have the highest priority.
Try to Lower Interest Rates
Most lenders, including the Department of Education, will reduce your interest rates for setting up direct deposit because it reduces the risk of late or missed payments. This reduction, usually in the neighborhood of 0.25 percent, may not seem like much, but it can save you hundreds of dollars over the course of the loan. For all lenders, it can’t hurt to simply ask for a reduced interest rate. Many will be flexible based on a strong credit history or job status.
This is a common option for loan repayment. By paying bi-weekly instead of monthly, you pay less interest because there is less time for interest to build between payments, and you pay an extra month of payments each year.
Pay a Little Extra Each Month
Even an extra $10 in principal every month or every other month can shave off interest from later payments, allowing you to pay off your student loans faster with minimal day-to-day financial impact.
Set Up Automatic Payments
Studies have estimated that up to 25 percent of borrowers are late with their very first student loan payment! The last thing you want to do is incur fees or higher interest rates that increase your debt load. Automated payments make it almost impossible to miss a payment.
Set a Budget and Stick to It
You’ve graduated from college. Time to grow up. Create a detailed, realistic budget and develop enough discipline to stick to it. Visit the grocery store more than your favorite restaurant. Take the tax refund that you would have used for spring break and put it toward your student loans. This is how you’ll find the flexibility to make bi-weekly payments or pay a little extra each month.
As much as you want to pay off those student loans, it’s not a good idea to include every last cent in your payments. Building credit card debt to pay off college debt is counterproductive. Look for opportunities to reduce your payments and shorten the repayment schedule, but make sure you’re living within your means.
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