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Even with the federal student loan forbearance extension, you might still be concerned about paying off your student loan debt. Whether you need to pay off private student loans or want a head start when federal student loan payments resume, there are a few ways you can start reducing your student debt now.
How to reduce your student loan debt
If you’re living paycheck to paycheck or your student loans are holding you back from other goals, here are five ways you can take action today.
1. Sign in to Autopay
This is probably one of the easiest ways to lower your student loan debt. Many student loan lenders offer a discount if you set up automatic payments for your student loans. This gives you an interest discount – typically 0.25% – and could lower the total amount you pay back. While it doesn’t make much of a difference in the short term, it could save you a significant amount over the life of your loan.
Pay more than the minimum to get even more bang for your buck. Some lenders limit your monthly automatic payments to the minimum amount, while others let you pay any amount. If your lender makes you pay more than the minimum amount, paying more than the minimum amount can speed up your payout period.
2. Pay interest before capitalizing it
Capitalized student loan interest is the unpaid interest added to your loan balance. Most student loans accrue interest while you’re in school, whether or not you make payments during that time. Eventually, if you don’t make payments while you’re at school, accrued interest will be added to your balance, increasing your total amount owed. So pay what you can if possible.
Making payments while you’re still in school can save you money over time. If you commit to making small monthly payments before you close—even if it’s just interest—you’ll save even more until you close.
3. Pursue student loan forgiveness or repayment programs
Some other options to consider are Public Service Loan Forgiveness (PSLF) Plans and Income-Based Repayment Plans (IDR):
- Public Service Loan Forgiveness: PSLF is a federal award program for those who have careers in the public sector. You make 120 qualifying payments while working for an eligible employer, e.g. B. a non-profit organization, a government agency, or a public school. After you meet these requirements, the remaining credit will be awarded.
- Income-based repayment plans: Most government student loans are also eligible for IDR plans. These plans calculate your monthly payments based on your household income and family size. You make monthly payments for 20 or 25 years — depending on your plan — and then any balance is waived.
IDR plans require a bit more maintenance. You update your income every year or when your life changes fundamentally (e.g. if you lose a job or the size of your household changes). When you’re not working, your payments can go down to $0 a month with no penalties or fees. This is a great option for borrowers who work in lower-paying sectors and already have tight budgets.
4. Consider refinancing student loans
If you have private student loans, a mix of private and state, or want to take advantage of lower interest rates, refinancing your student loans could be a viable option. Debt restructuring is taking out a new loan to pay off existing student loans. Then you make a monthly payment to your new private lender.
When you refinance, do so with a private lender. That means if you have federal student loans, you lose all federal protections — like deferral, forbearance, income-based repayment plans, and PSLF. Carefully weigh the pros and cons of refinancing, especially if you have federal loans.
Refinancing does not always guarantee a lower interest rate. Only consider refinancing if you are not eligible for federal forgiveness programs and have sufficient credit to qualify for a lower interest rate than what you are currently paying.
5. Seek employer support
Some employers want to help their employees pay off their student loan debt, so they offer incentives. Employer support comes in many different forms and can vary by company. You may be able to receive monthly payments for your student debt, up to a certain amount per year, or all over the life of your loans.
Check with your employer to see if they offer such programs. If they don’t currently, ask if they would consider offering student loan assistance. You can also ask potential employers about this benefit when you are job hunting.
What is the Average Student Loan Debt?
The average student loan debt for 2020 graduates was $28,400, according to the College Board. And this number changes depending on the type of school, school leaving certificate, state school and type of student loan (federal or private):
- Public school: 55% of undergraduate graduates graduated from public school with student debt, an average of $26,700 per student
- private school: 57% of bachelor’s graduates graduate from a private school with student debt, an average of $33,600 per student
But how much student loan debt is too much?
The typical monthly student loan payment ranges from $200 to $299, according to the Federal Reserve. But overall, the amount of student loan debt that’s too much for you might be manageable for someone else — meaning everyone’s debt threshold is in proportion to their own income, financial commitments, and experience.
If you’re struggling to make ends meet because a significant portion of your income goes toward paying off student loans, you may have too much student loan debt. So, following the tips above can be a smart move to make your student loans more manageable.
Taking small steps now to lower the amount you owe can really add up over time. See which steps work with your budget and schedule, and don’t be afraid to try something new if something doesn’t work for you.