Many Americans are suffering under a mountain of student loan debt, which is at an all-time high of $37,000 per graduate. About 7 in 10 graduates are carrying education debt, which totals over $1 trillion in student loans. No matter if you can easily afford your payments or are struggling to keep up with them, it’s important to know your options.
Consider these 7 ways to make your student loans more affordable so you can get out of debt faster:
1. Consolidate your federal student loans.
If you have more than one federal student loan, the government can consolidate them into one loan. (The federal program doesn’t allow consolidation of federal and private student loans together.)
Doing a consolidation gives you one loan with an interest rate that’s a weighted average of all your previous rates. In other words, consolidating federal loans doesn’t reduce your interest rate — but it does give you the following benefits:
• Fewer accounts and payments to keep track of each month
• One fixed-rate loan (any variable-rate loans are converted into a fixed-rate).
• No or minimal fees
• Reduced monthly payments, if the length of your payment term is extended
The major downside to consolidating federal student loans is you may lose special features or benefits that come with your original loans. These might include loan forgiveness for public service work (more about this in an upcoming tip), forbearance for financial hardship, repayment options, and certain interest rate discounts and rebates. Be sure to ask potential lenders what loan options you’d give up in a consolidation.
2. Refinance your private student loans.
If you have multiple private student loans, you can refinance them into one loan. And there are private lenders that may refinance private and federal student loans together.
Unlike consolidating federal student loans, refinancing private loans doesn’t result in an interest rate that’s a weighted average of your old loan rates. Private lenders evaluate your financial situation for approval. If your finances and credit are better than when you first got your loans, you may be able to refinance at a lower interest rate. This would allow you to:
• Lower your monthly payments
• Shorten your repayment time so you pay off the debt sooner
• Reduce the total amount of interest you must pay
• Choose a variable interest rate loan, which can be more affordable if you plan to pay off your loan relatively quickly
• Have one simplified monthly bill
When you have lower payments, you save more money. That allows you to send more toward your principal balance each month and pay down your loan faster.
3. Explore loan forgiveness programs.
Some types of federal student loans come with a forgiveness program that allows some or all of your debt to be eliminated. This might be the case if you work full time in certain industries, such as teaching or medicine, or if you do public service work for a certain amount of time.
However, be aware that some types of forgiven student debts are considered income, so you may still be on the hook for income taxes on amounts you don’t repay.
4. Make accelerated loan payments.
A secret weapon you can use to whittle down balances on student loans faster is to make accelerated payments. For example, you might make biweekly instead of monthly payments. This strategy works for all types of installment loans if they don’t impose a prepayment penalty (and student loans typically don’t charge one).
Biweekly payments take advantage of the fact that one month out of each quarter has five weeks in it instead of four. There are 13 weeks in each quarter, not 12, and there are 52 weeks in a year, not 48. So, it’s a sneaky way to get the equivalent of one extra monthly payment made each year.
The additional payment works wonders toward paying down a loan faster, which means you pay less interest over time. This strategy works especially well if you get paid every other week, so you can budget the biweekly loan payment to occur close to each payday.
5. Pay more than the minimum.
If you have extra money each month, you could pay more than the minimum payment.
Let’s say you owe $50,000 at a 5% interest rate for 10 years. Your minimum payment would be $530 and cost you about $14,000 in interest over the life of the loan. But if you pay an additional $100 each month, you’ll save about $3,000 in interest and pay off the loan two years earlier.
When you send more than the minimum payment or make biweekly payments, add a note to your payment indicating you want the extra to go toward your principal balance. Otherwise, the lender may think you’re prepaying the next month’s payment and simply hold it, which won’t help you get rid of the debt any faster.
6. Use windfalls to pay down debt.
As tempting as it can be to quickly spend a bonus, gift or tax refund on a luxury item, using a windfall to pay down debt is the absolute easiest and most effective way to get rid of student loan debt faster.
If you have debts with higher interest rates than your student loans, such as credit cards, personal loans or payday loans, it’s typically best to pay off those first because they cost you more in interest.
7. Automate your loan payments.
Many lenders offer to automate loan payments by drafting them from your bank account on a given day each month. In exchange, they may offer a slightly lower interest rate, which helps you pay off your student loans a little faster.
Your options depend on the type of loan you have — and you can learn more about federal loans at StudentLoans.gov. Always contact your lender to discuss your options if you can’t afford to pay a student loan.