Learn the Best Way to Pay Off Your Student Loans
Student loan debt can be a heavy weight to carry. The best way to lighten the load is to get rid of it. How do you do that? By paying off your loans faster than you have to.
The best ways to pay off your student loans quickly include finding ways to save more money, making larger monthly payments each month, restructuring your loans, receiving assistance from your job, or qualifying for student loan forgiveness. In this article, we’ll discuss each of these strategies so you can decide which one best fits your repayment needs.
Save more money
Student loan repayment is all about having a plan. If you divert money from other areas of your budget or save in other areas, you could make larger payments toward your loans. Here are a few ways you can set aside a little extra cash.
Cut your budget
Take a look at your after-tax income against your monthly expenses. If you’re spending more than you’re saving, you should tweak your budget to cut down on nonessential items. Making small changes could help you repay your debt sooner.
Take advantage of tax credits
Depending on your modified adjusted gross income (MAGI), you may be able to deduct student loan interest payments on your taxes. Since 2001, the dollar amount of the deduction has been the lesser of $2,500 or the actual interest paid, though this is liable to change. Consult the IRS website for the most current terms and eligibility criteria. And if you’re getting any tax refunds, consider applying those funds to reduce your loan’s principal. If you’re returning to school, you could also deduct tuition/fees as well. For more information on tax benefits, visit: studentaid.gov/resources/tax-benefits.
Pay more each month
The more you pay each month above the minimum payment due, the sooner you’ll pay off your debt. Paying more each month may allow you to reduce your principal amount, which could reduce the amount of interest you ultimately pay, saving you money over the life of your loan.
Make extra monthly payments
Whether you decide to pay more than the minimum each month, use windfalls for extra payments here and there, or schedule biweekly payments, the simplest way to pay back your loans faster is to make additional or greater payments than the prescribed repayment schedule set by the lender.
Earn more income
Taking on extra hours and/or a side gig can boost your income, which may allow you to make larger loan payments. Be careful to manage your time and not overstretch yourself — it’s important to pay down your debt but not at the cost of burning yourself out.
Restructure your student loans
Restructuring your loans by refinancing or streamlining your payments could help you pay off your student loans sooner.
Refinance your student loans
Refinancing your student loans could potentially reduce your interest rates, which could in turn help you pay your loans off faster with the money you’ll save in interest. It may be worth checking your rate to see if you can qualify for a lower interest rate by refinancing.
Keep in mind that if you have federal student loan debt, refinancing to private loans will mean you’ll no longer enjoy benefits including, but not limited to, Income-Driven Repayment plans, Public Service Loan Forgiveness,1 federal forbearance, and any other benefits offered to federal borrowers. If your finances and job are stable, the appeal of the money you could save might outweigh the advantages of the safety provided by federal benefits.
Increase your payment amount
You can work with your lender to try to shorten your loan term. This would mean your monthly payments would increase but you could reduce your interest costs over the life of a loan.
Adjust your servicer settings
You can also work with your lender to make larger payments toward the principal of your loan. Reducing your principal amount may lower your interest costs, driving your overall loan costs down. Remember to speak with your lender to see how you can restructure your payment settings.
Automate student loan payments
Some loan programs offer discounts in exchange for automating payments. This could help you lower your interest rate and guarantee that you always pay on time. If you refinance your loans with KeyBank, we offer an additional discount for setting up automatic monthly payments from your bank account; click here for more information.
Investigate your job’s student loan repayment assistance
Depending on your job and the type of loans you hold, you might qualify for student loan repayment assistance and forgiveness programs.
Student loan forgiveness
The Department of Education has created several avenues towards student loan forgiveness, wherein eligible borrowers can have all or part of their federal student loan debt discharged after a certain amount of time in repayment and after meeting certain qualifying criteria. Some forgiveness programs are based on your repayment plan, while others are based on your occupation. For example, federal, state, or local government employees and some nonprofit workers may qualify for Public Service Loan Forgiveness (PSLF), as may some nurses, doctors, or other medical professionals. Teachers may also qualify for additional forgiveness programs. Find out more about federal student loan forgiveness and how to qualify on the Federal Student Aid website.
Some jobs in public sector fields, such as education, health care, and public service, may allow you to forgive parts of your student loans. Public Service Loan Forgiveness (PSLF) is a federal program available to those employed by U.S. federal, state, or local governments, or not-for-profit organizations that forgives your remaining loan balance after you make 120 qualifying payments. Read more about federal student loan repayment programs, or learn more about PSLF at studentaid.gov/publicservice.
Student loan assistance
Some public sector jobs provide loan repayment assistance to help you pay off your student loans, and some private companies are also beginning to offer student loan assistance as an additional benefit. KeyBank partners with employers to set up this type of incentive for student loan benefits.
Learn the best strategies to repay your federal student loans
If you have federal student loans, here are a few strategies to consider depending on your repayment goals:
Public Service Loan Forgiveness
Some jobs in public sector fields, such as education, health care, and public service, may qualify you for student loan forgiveness. Public Service Loan Forgiveness (PSLF) is a federal program available to those employed by the US federal, state, local governments, or not-for-profit organizations that forgives your remaining loan balance after you make 120 qualifying payments.
Income-Driven Repayment (IDR)
Other options include IDR plans, which can help make monthly payments more manageable, especially early in your career, and you could qualify for loan forgiveness in 20 to 30 years. IDR plans establish monthly payments based on a percentage of your adjusted gross income. Note that decreasing your monthly payments will typically result in you having to pay more interest overall, but this can also lead to a larger forgiven balance.
Standard Repayment Plan
If you want to pay less interest over the life of your loan, opt for the standard repayment plan. This is the default repayment plan if you don’t select another repayment option. You’ll make equal monthly payments for 10 years and pay off your loans faster and with less interest than other federal repayment plans.
Explore your options with an expert guide
Have questions about how to qualify for federal student loan forgiveness? Our student loan specialists can help you understand your options, including repayment or forgiveness programs such as PSLF or IDR. Schedule a free 30-minute consultation2 to get started, learn more here.