You’re probably familiar with the staggering stats about student loans today—borrowers now owe more than $1.6 trillion combined. According to the Institute for College Access & Success, 65 percent of college seniors who graduated from public and private nonprofit colleges in 2017 had student loan debt, owing an average of $28,650.
Odds are, you have some yourself.
For many, that burden weighs heavy. Beyond having less discretionary cash, a high monthly payment might also be affecting serious goals like your inclination or ability to save and invest, buy a home or even get married.
The faster you repay your loans, the more money you can save in terms of interest. (Check out this calculator to see the difference in a point of interest.) But another reason to try and pay that debt down faster is that it lowers your debt-to-income ratio, which means you could bump up your credit score and/or qualify for a larger loan if you’re making a big-ticket purchase like a house.
Fortunately, there are ways to put a big dent in your student loan balance quickly—or even have that student debt paid off for you.
1. Seek out company-sponsored support.
PricewaterhouseCoopers made headlines when the accounting firm became one of the first to announce it was giving associates and senior associates help with their student debt. While this perk isn’t as mainstream as, say, health insurance or free snacks—its prevalence is increasing. In 2019, about eight percent of organizations offer a student loan repayment benefit, doubling from four percent in 2016, according to the Society for Human Resource Management (SHRM)’s 2019 Employee Benefits survey. It’s a valuable incentive worth negotiating at your next company or performance review.
Pending legislation would expand the tax exclusion for employer-provided educational assistance to include payments of qualified education loans by an employer to either an employee or a lender. That favorable tax treatment could help make the practice more common.
2. Research career-based options.
Depending on your chosen field, you may be eligible for a specialized repayment assistance or forgiveness program. These are common for law school alumni who pursue careers in public interest, teachers in schools serving low-income families, health care providers working in shortage areas, and nonprofit or government employees.
“These programs can be wonderfully generous, but the details matter and the benefits aren't automatic,” cautions student loan expert Heather Jarvis.
For public service workers, for example, tax-free forgiveness is earned by making 120 "qualifying payments,” which, Jarvis says, “must be the right kind of payment, on the right kind of loan, made while working in the right kind of job.” That is, on-time payments on a federal loan under an income-driven repayment plan, while working full-time for a 501(c)(3) non-profit or a government employer. Whew!
Another potential hitch, Jarvis says, is that only some borrowers qualify for the program, so you may first need to consolidate. Similar requirements exist for other career-based programs, so read the fine print.
3. Find out if you qualify for an income-driven repayment plan.
The government provides income-driven repayment plans with names like Revised Pay As You Earn Plan (or REPAYE), which allows qualifying borrowers to cap monthly payments at a set percentage (generally 10 percent) of discretionary income. Depending on the plan and whether you borrowed for undergraduate or graduate studies, any remaining debt will be forgiven after 20 or 25 years.
Again, it’s important to do some research to ensure you meet all requirements and decide whether it’s right for you. The plan can be a good option if you’re struggling to keep up with loan payments. But while lower payments can help in the short-term, stretching out the length of the loan can also result in more money paid on interest over time.
4. Automate it.
Many lenders offer an interest-rate reduction—typically about 0.25 percent—for borrowers who sign up for auto-debit with electronic billing. Sure, it’s only a slight discount, but every bit counts. Plus, it reduces the likelihood that you’ll be late or forget to make a payment.
5. Keep tabs on your interest rates.
Interest rates can vary wildly among loans, so keep tabs on what you’re paying on each and instruct your servicers in writing to apply any extra payments to your highest-rate loans first.
And don’t forget: Come tax time, you can deduct up to $2,500 of interest paid on your federal and private student loans on your federal income tax return. That’s an above-the-line income exclusion, so you can claim the deduction even if you don't itemize.
6. Hack your payment schedule.
Got some extra cash to throw at your loans? Make sure your lender applies it to your principal instead of counting it as an early payment; in other words, you want this to be in addition to your regular payments, not instead of one.
Another way to pay down the principal faster is to pay your loans twice a month, biweekly—not two full payments, but two halves. That means instead of 12 payments a year, you’re submitting 26 half payments, or 13 full payments. Without much effort, you will have just made an extra payment on your student loan.
7. Refinance your loan.
Refinancing your loan entails taking all your loans to a private lender and bundling them for a potentially better interest rate, along with one easy payment.
Before you decide if it’s right for you, do the math. If you’re shelling out $100 or less per month, refinancing may not make a big difference. But if you’re paying even $200 to $400 a month, you could potentially save thousands over the life of your loan by refinancing. The key is the rate, and those smoking rates you’ve seen advertised are only available to those with the best credit. You also need to look at how it compares to your current rate (or rates if you have multiple loans). The higher your current rate, the more you gain from refinancing to a lower one.
Research large online lenders like SoFi, Earnest, LendKey and CommonBond, paying particular attention to rates, fees and repayment terms. Researching all the details will ensure that you’re making the right move if you decide to refinance.