The sarcastic answer: pay your student loans in full and on time. Obviously it’s a bit more complicated than that, and there are things you can do while getting your degree that will help you pay off your loans. Here are five ways you can tackle your rising student loan debt.
Research Repayment Programs
Did you know that the federal government will pay off your student loans? Like every government program you need to jump through the right hoops at the right time. In most cases you will need to be employed full-time in a specific field and then make 10-15 years of on-time and in-full payments. Should you miss a payment you could lose out on your eligibility, so it is important to know the details before you start repayment.
It’s also important to know what occupations would qualify. For example, I know someone who was signed up to have their loans forgiven because they were working in a non-profit organization. About 5 years in she decided to take a job at a church, thinking it still qualified. She found out that it did not and was now responsible for paying off her loan. Had she found out before she may not have left her job. It can also help to know before you graduate so you apply for qualified positions and it might even tip the scales towards one major.
You can find out more details here:
Use the PIE method
PIE stand for Pay In Early and it simply involves getting ahead of your payment schedule by at least one month. Basically, you’ll make your August payment in July. Your monthly statement will typically say you have $0 due in the month, so you need to overlook that. This plan saves you a little money and time, but if you are paying more than the minimum you can really start to steamroll the loan. Hopefully you know that federal student loans have a grace period, so it is easy to get ahead one month just by starting your repayment a month early.
Don’t compound the problem
Fact: Federal student loan interest does not compound while you are enrolled in school.
What does this mean to you? It means you are not getting charged interest on the interest from previous months. Think of it like having a bucket for the amount you borrowed and a separate bucket for the interest each month. After your grace period ends the two buckets get dumped into one and you start paying interest on that bucket. If you want to pay less in the long run, and pay off the loan faster, pay off the interest bucket right before it gets dumped in with the original loan amount. You can wait until the last moment, but I think it is more manageable to make smaller payments over time. You can plan it to be about $1,000-$1,500 at the end, or about $20-$50 each month.
Snowball your loans
This was a great way to pay off loans fast, but with changes to student loans in recent years it will take more work on your part. What you need to do is contact your servicer and request that each of your loans be kept separate and not consolidated. You’ll probably be paying $50 per month for each loan. Next, pay the minimum on all of your loans except the one with the smallest balance due. Then put every spare dime you find in the couch cushion towards the principle balance on the smallest loan. You’ll pay it off relatively quick, at which point you take that monthly payment, plus any extra you find, and add it to the payment for the next smallest loan. Things will be slow early on, but once you start paying off loans things will move quickly. You ignore the interest rate, so some advisors will tell you to focus on the interest rate and not the balance.
One of my favorite tips because it uses the system against itself! The idea is a combination of the plans I mentioned above. Let’s say you have a $300 per month payment that is due on the 15th of each month. With this plan you’ll make a $150 payment on the last day of the prior month and then a $150 payment when your payment is due. You’ll need the mental fortitude to remember to make the split payment. It’s pretty easy with this method to save yourself a year or more in repayment. If you can pay more than the minimum it will help. I suggest that you start by paying one month on the 15th and then start your half payment at the end of that same month.
With any of these options it is best to start early, right when your repayment begins. So take this summer and pick a method that makes sense to you. Let me know in the comments what you decide or if you have any other great ideas for paying down student debt.