How to Pay Off School Loans Quick
So you've graduated, found a job, and now hope to get out of debt and pay off your school loans quickly. By following a few simple tips, you can not only pay off your student loans quickly but also any other types of debt (credit cards, auto loans, mortgage).
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Instructions
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Review your student loan documents. Which ones contain the highest interest rates (check if your rates are fixed or floating)? Are some of your loans deferred for a period of time after graduation? Do you have government-backed and private label loans? Consider paying off the private loans with the highest interest rates first.
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Federal Stafford Student loans. When you reviewed your student loan documents, did you find any of these? Are they subsidized or unsubsidized? If you have unsubsidized loans (or both types), pay down your unsubsidized principal balance first. You must include clear and specific instructions on your check, otherwise your extra payments will be applied to all of your outstanding Stafford loans pro rata (equally based on the outstanding loan balance). In certain instances, the government will make interest payments on your subsidized loans for you--that is why you should pay down your unsubsidized loans first. For more information about Federal Stafford loans, please see the link in the Resource section.
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3
Draw up a monthly budget. List all of your income/revenue and subtract all of your expenses (assume minimum payments for revolving loans and credit cards). How much is left over? Consider saving half and allocating the other half to paying down school loans (or other debt--see step 4).
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Review all of your loans and debt. Do you have a credit card balance, with a higher interest rate than that on your student loans? If so, you may want to consider paying down and paying off your highest interest rate debt first, even if it isn't your student loan(s). Student loan rates are at historical lows, so you may get out of debt faster by focusing on reducing your higher interest rate debt (credit cards, auto loans) first.
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Review your tax position. Will your income fall below the IRS limits so that you can itemize and deduct the student loan interest paid? If so, you may want to consider paying down other debt to obtain the tax deduction. Refer to the IRS website in the Resource link below for more information.
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Stick to your budget and pay down more than the minimum amounts of your highest interest rate debt each month. Note on your check that the additional amounts should be applied to reducing the outstanding principal balance.
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Make bi-monthly payments instead of monthly payments. Else, try to add a 13th payment each year, applying the entire amount to the principal balance. By paying down the loan balance more quickly, you will reduce the interest accrued, thereby saving you money overall.
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Set up an automatic deduction from your bank account. Some loan programs will reduce your interest rate just for setting up the auto-debit feature.
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Make all of your loan payments on time. Some loan programs will reduce your interest rate after making a certain number of loan payments on time (never late). Every interest rate reduction will help you pay off your loan balance that much more quickly.
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Research consolidation. If you do not believe your student loan interest rates will fall any further and can only rise, you may want to consider consolidating some or all of your student loans. However, if you consolidate subsidized and unsubsidized loans, the new consolidated loan will be entirely unsubsidized.
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Tips & Warnings
Review your loan documents frequently and know when your interest rates will reset or adjust. Pay down the highest interest rate loans (unsubsidized loans) first.
To get out of debt quickly, review all of your outstanding debt, not just your student loans.
Look for opportunities to reduce your interest rates (auto-debit, timely payments).
Student loan programs vary. Read the documents carefully and call your loan provider or servicer with any questions.
