What’s the Best Way to Pay off Student Loans?

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How to Pay off Student Loans Faster

How to Pay off Student Loans Faster

By: Jeremy Fordham

It seems like getting a college degree these days is a prerequisite for working in most professions. In today’s economy especially, employers are frequently inundated with waves of resumes that force them to resort to mass sorting techniques in order to weed out the people they don’t want. Thus if you don’t have a degree of any kind, chances are your resume will end up in the garbage. It’s that simple.

Yet unfortunately, education comes with a pretty chunky price tag. Getting a standard four-year degree can cost upwards of $200,000, so it shouldn’t be a surprise that a majority of students who attend college – even those who attend less expensive community colleges – accrue some debt while studying. While scholarships exist for those who excel in the classroom (and for those who are willing to put in the time to search and apply for them), most people leave college with a hefty sum of money to pay back. This puts a lot of pressure on new graduates to find jobs immediately so that they can begin an often decade-long repayment process. However it is possible to streamline this repayment process, and all you have to do is simply follow the tips below:

Minimize your loans

Planning for college is a process that you shouldn’t take lightly.  Aside from deciding where to go and what program best matches your interests, it’s extremely important to decide how you’re going to finance your degree. Sometimes this means making compromises. Yes, you got into Princeton and Harvard, but are they really worth that $55,000 tuition bill each year? What about the other schools whose names might not be as well known but whose educational programs in specific disciplines are on par – or even better – than these Ivy League institutions? A compromise could save you tens of thousands of dollars down the road.

Colleges offer many government-sponsored ways for you to help pay for your education while in school, like the work-study program. Essentially, the government pays a university to give you an on-campus job, which in turn can cut up to $5,000 a year from your tuition expenses – and you make pocket money. The work-study program is usually included in a student’s financial aid package and is a subtle but effective way of helping students forego taking out loans. Some universities even have internal scholarships that you can apply for once you’ve been in residence for a semester. Alumni typically donate these scholarships; you should definitely ask your financial advisors for more information on these.

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Get government loans

If you absolutely must get loans, do your best to get as many of them through the government as you can. Government loans have lower interest rates and better repayment options than private loans through banks. Government loans also have very flexible grace periods and if you are unable to find a job within six months after graduating, you can get that grace period extended while accruing debt at a low interest rate. Likewise, government loans also offer interest rate reduction incentives for doing things like paying electronically and consolidating multiple loans into one (though be weary of this – you might actually end up paying more).

Repayment

Most loan repayment plans are stretched over 10 years – that’s a long time to be forking over bills! For a college graduate with $13,000 in debt, this amounts to monthly payments of about $150 dollars. For graduates with $50,000, the payments increase to around $500 a month. As you can see, that monthly bill gets high pretty quickly depending on your loan, making it wise to avoid taking loans unless you absolutely must.

If you get a well-paying job, it’s important to be responsible about your loans. Paying off loans on time helps your credit score immensely. If you get a Christmas bonus or a pay raise, consider doubling your payment every other month. The more money that you can pay on your loans in a shorter amount of time, the less interest you accrue and the more you save, ultimately. Government jobs even have loan-help programs, where they offer to pay a percentage of your college loans for working as a civil servant. It is easy to search for other jobs with these types of programs, too; they’re more common than you might think.

The key to repaying loans is in the initial planning – do whatever you can to minimize the amount of loans you need to take out. Take out loans from relatives if necessary. The less government or private loans you have, the more freedom you will gain in the future. Research and apply for as many scholarships as you can. You’ll be glad you did.

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Jeremy Fordham is a contributing writer for onlinephdprograms.com.

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  • http://www.moneyinyour20s.com/ CK @ Money In Your 20s

    Great post! It’s so important for students to carefully consider financing options. Loans not only give you a considerable monthly payment and interest, but they in a way delay your life by sucking up money you could be investing for retirement or for a first home. If you’re paying a loan for 10 years, you can never get those extra 10 years of compound interest you would have gotten if you invested.

  • Dre

    Research scholarships and grants before checking the ACCEPT box on the FASA form :). This will save you a lot of headaches later on in your life. You don’t want to take 30+ years to pay off student loans.

    If you currently have other debt, put those in order from smallest to largest amounts, and your student loans will probably be the last for you to pay off. Use the mim. payment + a snowball amount to start tackling those student loans!!

  • Laur

    I graduated college with 3 PRIVATE loans; theyre with the same company, so each month I make 1 payment that gets divided up between the 3, based on what the monthly $$ owed is. These 3 loans ARE NOT consolidated. My father is a cosigner and due to the fact that I deferred payments after college, the company does not allow you to take the cosigner off, even though I am making timely (most of the time) payments of about $800 per month. I am at a loss, because Ive been laid off twice in a year and the payment amount is killing me. Can you recommend any lenders who are sympathetic to a situation like mine (I know Im not the only one) and would either consolidate these loans through them or lend me the money to pay it off so that I can start the loan life over and not have 3 DIFFERENT interest rates anymore? I need to do this on my own, without a cosigner. Its a pretty sticky situation and its causing me an extreme amount of stress each month.