How To Lower Your Student Loan Debt In 5 Easy Ways – Forbes Advisor

How To Lower Your Student Loan Debt In 5 Easy Ways


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Even with the federal student loan forbearance extension, you might still be worried about paying off your student loan debt. Whether you have to pay off private student loans or you want to get a head start on when federal student loan payments resume, there are a few ways you can lower your student debt right now.

How to Reduce Your Student Loan Debt

If you’re living paycheck-to-paycheck or your student loans are holding you back from other goals, here are five ways you can take action today.

1. Enroll in Autopay

This is likely one of the easiest ways to lower your student loan debt. Many student loan lenders offer a discount if you set up automatic payments for your student loans. This gives you an interest rate discount—usually 0.25%—and could lower the total amount you repay. While it might not make a major difference in the short term, it could save you a significant amount over the life of your loan.

Pay more than the minimum to get even more bang for your buck. Some lenders limit your monthly automatic payments to the minimum amount while others will let you pay whatever amount you like. If your lender lets you pay more than the minimum balance, you can accelerate your payoff timeline when you pay more than the minimum amount.

2. Pay off Interest Before It Capitalizes

Capitalized interest on student loans is the unpaid interest that’s added to your loan balance. For most student loans, interest increased while you’re in school, whether you make payments during that time or not. If you don’t make payments while in school, increased interest will eventually be added to your balance, causing your total amount owed to increase. So, if possible, pay what you can.

Making payments while still in school can save you money over time. If you commit to small monthly payments before you graduate—even if it’s just paying off the interest—you’ll save even more by the time you graduate.

3. Pursue Student Loan Forgiveness or Repayment Programs

Some other options to consider are Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans:

  • Public Service Loan Forgiveness: PSLF is a federal forgiveness program for those who have a career in the public sector. You’ll make 120 qualifying payments while working for an eligible employer, such as a nonprofit organization, government agency or public school. After you meet those requirements, any remaining balance is forgiven.
  • Income-driven repayment plans: Most federal student loans are eligible for IDR plans, too. These plans calculate your monthly payments using your household income and family size. You’ll make monthly payments for 20 or 25 years—depending on your plan—and then any remaining balance is forgiven.

IDR plans require a bit more maintenance. You’ll update your income every year or when you have a major life change (like losing a job or a change in household size). If you aren’t working, your payments may drop to $0 a month without any penalties or fees. This is a great option for borrowers who work in lower-paying fields and already have budgets that are stretched too thin.

4. Consider Student Loan Refinancing

If you have private student loans, a mix of private and federal, or you want to take advantage of lower interest rates, refinancing your student loans could be a useful option. Refinancing is when you take out a new loan to pay off your existing student loans. Then, you’ll make one monthly payment to your new private lender.

When you refinance, you do so with a private lender. This means that if you have federal student loans, you’ll lose out on any federal protections—like deferment, forbearance, income-driven repayment plans and PSLF. Carefully consider the pros and cons of refinancing, especially if you have federal loans.

Refinancing doesn’t always guarantee a lower interest rate. Only consider refinancing if you aren’t eligible for federal forgiveness programs and you have strong enough credit to qualify for a lower interest rate than what you’re paying now.

5. Seek Employer Assistance

Some employers want to help employees pay off their student loan debt, so they incentivize it. Employer assistance comes in many different forms and can vary depending on the company. You might be able to get matching monthly payments toward your student debt, up to a certain amount every year or in total over the life of your loans.

Check with your employer to see if they have programs like this. If they don’t currently, ask if they would consider offering student loan assistance. You can also ask prospective employers about this benefit if you’re job hunting.

What Is the Average Student Loan Debt?

The average student loan debt for 2020 graduates was $28,400, according to the College Board. And that figure changes drastically depending on the type of school, level of schooling completed, state school is in and type of student loans (federal or private):

  • Public school: 55% of bachelor’s degree recipients graduated from a public school with student debt, averaging $26,700 per student
  • Private school: 57% of bachelor’s degree recipients graduated from a private school with student debt, averaging $33,600 per student

But How Much Student Loan Debt Is Too Much?

The typical monthly student loan payment is between $200 and $299, according to the Federal Reserve. But overall, the amount of student loan debt that’s too much for you might be manageable for someone else—this means that everyone’s debt threshold is relative to their own income, financial obligations and experiences.

If you’re struggling to make ends meet because a sizable portion of your income goes to repaying student loans, you might have too much student loan debt. So, following the tips above can be a smart move toward making your student loans more manageable.

Taking small steps now to lower the amount you owe can really add up over time. See which steps work with your budget and timeline and don’t be afraid to try something new if something doesn’t work for you.



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