How to Repay Student Loans the Smart Way

According to Forbes, college students who graduated in 2016 had an average of $37,172 in student loans. No matter how much you have in loans or whether you’re in school, covered by a grace period or facing repayment, the question of how to repay student loans is sure to be top of mind. Use these five steps to manage and pay off your loans.

1. Set Goals

Don’t wait until the repayment period to develop a repayment plan. In fact, making loan payments during a grace period or during deferment or forbearance periods can lower the total amount you pay over the lifetime of your loan. The more you pay down on the principal balance, the less you pay in interest.

If you already know what you can afford to put toward your debt each month, see if there are any expenses you can cut — such as cable TV, eating out or gym memberships — that will allow you to contribute more. Reevaluate your goals every few months or as your financial situation changes, and use this Repayment Estimator to find the plan best suited to your situation.

2. Pay More Than the Minimum

Every little bit you can chip off your principal goes a long way toward paying off your loans faster. If you receive a bonus at work or any other unexpected financial gifts, consider splitting the proceeds in two, with half going to your emergency savings and half going to pay down your loans. Set up automatic payments to avoid wavering on paying extra each month. Or try adding payments. Instead of sending a check once per month, send one every two weeks, as your finances allow.

3. Refinance

Refinancing your loans can save you money — and help you pay off loans faster. When you first applied for your loans, you likely locked in at a set interest rate. The goal of refinancing is to combine several of your current loans into one new loan with a lower required payment and interest rate. You don’t want to refinance loans if you can’t find a better deal. But if you can, consider continuing to pay the same amount you were required to prior to refinancing.

4. Create a Separate Account
Move a set amount of money each month into a dedicated savings account for student loans. Whether the money comes automatically from your paycheck or you set up a monthly transfer between bank accounts doesn’t matter. What matters is that you learn to live without that money — whether it’s $20 a month or $200 — instead of spending it on dinners out, new clothes or other nice-to-haves. Whatever you do, only use this money for paying student loans. Then, when your loans are paid off, convert this account to your emergency savings account since you won’t miss the money.

5. Find Forgiveness
Some companies offer loan repayment as an employee benefit. For an outside-the-box approach, there are 77 counties in Kansas that will pay a resident’s student loan debt off, up to $15,000.

Under the Public Service Loan Forgiveness Program, certain government and nonprofit jobs qualify for forgiveness of federal student loans, too. Each branch of the military has its own repayment program, and many teaching jobs come with loan forgiveness options. Other circumstances may qualify you for cancellation or discharge of your loan.

The sooner you know how to repay student loans, the sooner you can pay them off and put more money toward your retirement, investments or other financial goal.

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