How to Pay Off Student Loans in Five Years
Student loans are common among undergraduate students, with 65.6 percent of students graduating with student loans in 2008, averaging $23,186 of debt according to Fin Aid. Repayment terms on student loans are typically 10 years or longer, with private loans and consolidation loans sometimes offering repayment terms of up to 25 years. If you repay your loans more quickly, however, you will pay less in interest and free up your income for other things, such as buying a house, having children or investing for retirement. One idea is to calculate a plan to pay off your student loans in five years.
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Instructions
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Look up the amount owed and interest rate on each of your student loans. Do this by looking at your most recent loan statement or calling your lender. If you do not know what student loans you have, use the National Student Loan Data System to look up your federal loans.
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Navigate to a website with a loan calculator. The loan calculator must have a feature for setting a target repayment date.
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Type the amount owed, interest rate and your target repayment date of five years from when you graduated or five years from the present time, depending on your goal. Click the button to compute your necessary monthly payment to meet this goal.
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Repeat the process for each of your other loans. You must calculate loans separately if they have different interest rates.
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Make extra monthly payments on each loan to bring your total monthly payment to the amount you calculated. For example, if you have $23,186 of debt at 6.8 percent interest, your monthly payment would have been $266.83 to pay it off in 10 years. If you accelerate it to five years, your payment will need to be $456.93, or $190.10 extra each month.
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Tips & Warnings
If you have credit card debt, pay that off before making extra payments on your student loans. Credit cards typically have significantly higher interest rates, often at least double that of student loans, so that debt costs you more to keep.
When you have multiple student loans with different interest rates, pay off the highest-interest loan first. Add up your total monthly payment from the calculations above and subtract the regular monthly payments for your lower-interest loans from this amount. The remainder is the total amount you should put toward your highest-interest loan each month until it is paid off. Then, reallocate that amount as an extra payment for the loan with the next highest interest rate and repeat until you are done with them all. Keep your total monthly payment constant to meet your payoff goal.
