More than 43 million Americans are currently in debt from their student loans, and a significant number of them find themselves in a decades-long struggle to clear this debt. However, there are methods to expedite the repayment process, such as making higher-than-minimum monthly payments. Additionally, various strategies, like exploring different repayment plans, refinancing options, and seeking loan forgiveness, can assist borrowers in achieving debt-free status.
In 2021, there were approximately 43.4 million borrowers in the United States, with an average student loan debt of around $37,000 per person. Shockingly, two decades after beginning college, half of these borrowers still owed at least $20,000 on their loans.
The situation is particularly dire for Black borrowers. A 2019 study conducted by Brandeis University revealed that the median student loan debt for white borrowers decreased by 94% over two decades after college, while Black borrowers were still burdened with 95% of their initial loans. This discrepancy can be attributed to several factors, including a lack of family resources to assist with loan payments and potential workplace discrimination that limits their income, making it challenging to meet their loan obligations.
For many borrowers in the United States, the frustrating reality is that they make payments for years, only to see their total debt grow. Although the federal government temporarily suspended federal student loan payments during the COVID-19 pandemic, many borrowers now owe more than their original loan amount, even after making payments.
A recent report highlighted that 63% of borrowers who voluntarily continued making payments during the pandemic-driven suspension still owe more than their initial loan amount, despite the absence of interest accumulation over nearly two years.
Borrowers seeking ways to expedite the repayment of their student loans may be feeling overwhelmed. While minimizing the number of loans taken out is the ideal approach, what other steps can be taken to reduce the loan balance as rapidly as possible?
9 Ways to Quickly Repay Student Loans
Here are some informational guides to paying your students fast.
#1. Make Higher Monthly Payments to Accelerate Repayment
Lenders establish a minimum monthly repayment requirement for student loans, but exceeding this minimum can significantly expedite the process of eliminating your student debt.
Consider the following examples provided by the Federal Student Aid office. If a borrower has taken out $15,000 in student loans, they can completely pay off that balance one year ahead of schedule by submitting an additional $15 per month. If they increase their monthly payment by an extra $60, they’ll manage to clear the debt three years earlier.
It’s essential to request your lender to allocate these additional payments directly to the principal amount. This practice can result in substantial interest savings. For instance, over a 10-year repayment plan, paying an additional $60 each month could translate into saving nearly $1,200.
#2. Cover Interest Charges While Still in School to Reduce Overall Debt
Interest accumulation is a significant factor that often leaves borrowers frustrated as they observe their loan balance barely decreasing. However, you have the option to expedite your loan repayment and save money by addressing the interest while you’re still in school.
In most cases, student loans start accruing interest well before borrowers even commence their repayment. This is particularly true for loans other than Direct Subsidized Loans provided by the federal government, as interest continues to accumulate while you’re enrolled.
What kind of impact can this have? Let’s say you borrow $27,000 in unsubsidized loans during your college years; you’ll be adding approximately $3,400 in interest to your loan balance by the time you receive your first monthly bill.
For private loans with higher interest rates, the interest can pile up even more. Take, for instance, a $33,000 loan with a 9% interest rate; borrowers could end up adding over $9,000 to their balance in interest within six months after graduating.
Addressing the interest during your time in school means you’ll be able to pay off the loan more rapidly. Furthermore, when it comes to financing your education, giving preference to subsidized loans can also make the process of repaying loans in the future more manageable.
#3. Research Different Repayment Options.
The Federal Student Aid program typically enrolls borrowers in the standard repayment plan, which determines monthly payments based on a 10-year repayment schedule. This plan is designed to pay off the loan in the shortest amount of time and is suitable for most borrowers. However, depending on your income and the amount you borrowed, other repayment plans might be more suitable for your situation.
For instance, some repayment options, like the extended repayment plan, extend the repayment timeline, leading to lower monthly payments but a longer overall duration. On the other hand, income-based repayment plans, while beneficial for some borrowers, often do not prioritize the fastest possible repayment of loans. The choice of the best plan depends on your individual financial circumstances and goals.
#4. Consider Refinancing to Reduce Your Interest Rate
Borrowers have the option to refinance their student loans, which can lead to reduced interest rates and a quicker loan payoff.
For instance, let’s consider an average loan of $36,400 on a 10-year repayment plan. Borrowers adhering to the average federal loan interest rate of 4.66% would pay $9,200 in interest over the loan’s duration. However, through refinancing to a lower 2.59% interest rate, borrowers have the potential to save anywhere from $4,250 to $6,750 in interest, depending on how rapidly they repay the loan.
Loan consolidation is another strategy that can assist borrowers in securing lower interest rates and achieving faster student loan repayment. Prior to making a decision to refinance or consolidate any loans, it’s essential to thoroughly examine how these changes will impact your monthly payments and the ultimate repayment date.
#5. Clear Your Loans with Every Paycheck by Making Regular Payments
While most lenders typically mandate monthly payments for student loans, you can expedite your loan repayment by adopting a more frequent payment schedule.
For instance, making biweekly payments each time your paycheck is deposited into your bank account can result in a quicker loan payoff. This is because making 26 biweekly payments, each equivalent to half of the monthly loan amount, accumulates to one extra full payment over the course of a year.
#6. Explore Loan Forgiveness Programs Through Research
The Federal Student Aid program provides various loan forgiveness plans, some of which are designed for teachers and professionals in public service fields. These programs can potentially lead to loan forgiveness, but they often require 120 monthly payments. Some borrowers might find that they can pay off their loans more quickly by other means.
Additionally, it’s essential to investigate loan discharge options. For example, students whose colleges close or individuals with a permanent disability may be eligible to apply for loan discharge, effectively eliminating their loan balance.
#7. Enroll in Automatic Payments for Convenience and On-Time Loan Repayment
Numerous lenders offer a reduction in interest rates to borrowers who opt for automatic payments. For instance, the Federal Student Aid program provides a 0.25% interest rate reduction, with payments automatically deducted from the borrower’s bank account.
While this slight interest rate reduction may not significantly accelerate loan repayment, automatic payments provide the benefit of ensuring you never miss a payment. This helps prevent any delays in your repayment schedule or the risk of losing eligibility for certain loan repayment plans.
#8. Conduct Research on Employer-Sponsored Student Loan Repayment Programs
Certain employers provide student loan repayment plans as an employee benefit, which can offer both cost savings and expedited loan repayment.
These employer-sponsored plans can take various forms, as outlined by SHRM. For instance, some employers make monthly payments directly to the loan servicer in employee-assisted repayment plans. Others might offer matching contributions, resembling the concept of a 401(k) match. Finally, some employers may allow their employees to choose between a contribution towards their student loans or retirement savings.
It’s worth noting that only a limited number of companies currently offer these benefits. Job seekers should consider researching potential employers’ benefit packages and inquire about the availability of student loan repayment plans as part of their compensation.
#9. Utilize Your Tax Refund to Accelerate Loan Repayment
come up with extra funds for these payments. Using your tax refund to reduce your student loan balance can potentially shave years off your repayment schedule.
Additionally, consider earmarking windfalls like bonuses, raises, and monetary gifts for paying down your loans. Just like with other extra payments, ensure that your lender allocates these funds toward reducing the principal amount rather than covering interest or your next monthly payment.
Furthermore, remember to explore potential tax deductions related to student loan interest. By increasing your tax refund, you can potentially accelerate your journey toward becoming debt-free.