Student Loans have impoverished much of our modern population with the promise of a better lifestyle. Even the most careful and financially responsible students end up paying back far more than they planned; the poor job market has further compounded the problem of paying back debt, even with a grace period for repayment after graduation. There is no easy way to eliminate a student loan, but strategies and options do exist to make it easier with dedication. The average indebted student repays $27,000 over nine years; use this as your measurement standard.
1. Find out what kind of debt you owe.
Do you owe money to the federal government, state government, or a private lender? There are advantages and disadvantages to each kind of debt. Formulate your strategy to repay the loan according to the advantages on which you can capitalize. Money paid toward interest on federal loans in the United States is tax-deductible, for example. On the other hand, federal governments often reserve the right to take some form of financial compensation upon failure to make monthly repayments. The Canadian Government, for example, can claim your tax returns upon failing to make monthly payments.
2. Start paying off debt in school.
How can you pay off your debt when you still require it to attend college and go to school in the first place? It isn’t easy, but you don’t even need to pay off a big chunk of it while you’re still in college. You probably work part-time if you’ve qualified for a student loan, so consider putting some of it toward slowing the growth of your debt. Just as compound interest works in your favour for savings accounts, it works against you while paying off a debt. Compound interest applies that annual increase on your loan to the running total rather than the original base amount that you paid. Keep it down to avoid paying out far more than you should in the future. You won’t pay off everything, obviously, but you can save yourself a huge headache in the future.
3. Do you qualify for a district consolidation loan?
Some students can roll all of their debts into one loan, which makes it easier to repay. Some students need to repay several things all at once with their own separate and varying levels of interest. Merging them doesn’t work for everyone, nor does everyone qualify for consolidation, but it tends to simplify and speed up loan repayments for those who do.
Talk to your bank and its competitors to find out if they would be willing to take on your debt under a new repayment plan. Be sure that you come to them with a plan to show that you have thought it through and think ahead enough to anticipate potential problems. Switching to a private bank may raise the interest rate—so don’t go for it if that’s the case—but you may be able to negotiate better terms at the same interest rate. Compare the plans that the banks offer in your area to find the best one before committing.
You may be able to secure a longer repayment period for the same amount of debt, which would lower your minimum monthly payments. You might even be able to negotiate for a better interest rate. Also remember that private banks cannot seize your tax returns for absent or late monthly payments, whereas the government may be able to do so.
4. Budget for it.
Take your debt seriously. Keeping a steady stream of income in the form of a job has proven to be the most difficult aspect of paying off student loans, so you need to prioritize it. Video games, eating out, trips to the movies, home decorations, new gadgets, and Internet services need to take a backseat until you repay the debt. Ending your television cable account will save you hundreds of dollars per year. If you haven’t or simply could not consolidate your loan, then you need to prioritize the ones with the higher interest rates. They simply grow faster. Pay them off first to eliminate paying more for them in the future.
Make more than the bare-minimum monthly payments. Credit lenders make their money on the interest that you pay each month, but you can mitigate how much you pay in interest rates in the long run! Every dollar you pay ahead of the next monthly instalment eliminates one more dollar’s worth of interest you need to pay in the future. Put your bonuses, budget surpluses, and the money for non-essential services toward your student debt! Also put your debt payment on automatic debit withdrawal. This ensures that you never miss a payment, and you can always pay off more manually if you can later in the month.
5. Cut living costs.
Every indebted student would just work more frequently if there were more jobs available and hours in a day. There aren’t, which means that you will get farther with the income that you have secured by reducing your costs. Live at your parents’ home to cut down rent to disproportionately low amounts, or live with a friend to split rent down the middle. Rent is the single biggest monthly cost you will pay; find a new living arrangement to reduce it!
Continue living like a student as well. Don’t buy extravagant groceries, new stuff that you don’t need, and so on. Paying off your debt before you reach the age of 45 requires dedication to a meagre lifestyle for a relatively short period of time.
6. Do you qualify for student loan forgiveness?
Some loans can be forgiven, although usually at great cost. The most common method used to be bankruptcy, but that no longer works for the vast majority of people who attempt it. Some circumstances do warrant the forgiveness of a student debt, however, so you should visit the government’s student aid page just in case.
Eliminating your student debt won’t be easy, but it can be manageable if you apply some or all of these strategies. Live frugally, begin paying it ahead of time, and pay more than the minimum rates. Budget for it like you would with any other debt by cancelling other non-essential services like cable television packages. Consolidate your loan or negotiate for a better repayment plan with a private lender. Follow these steps to get rid of your student loan, and good luck!