Student Debt Soars: 5 Ways to Pay Off Your Loans Faster
Student loan debt has reached a new record high, with college grads of every age bearing this burden. Here are five tricks to pay off college loans sooner.
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Student loan debt in the U.S. has reached a new all-time high of $1.4 trillion.
That reflects an increase of more than $833 billion — 149 percent — since 2007, according to a recent analysis by Experian. Student loans constitute the fastest-growing type of debt.
Just about the only good news from Experian’s findings is that late payments have decreased by 10.1 percent since 2009, the year the Great Recession officially ended.
Michele Raneri, Experian’s vice president of analytics, attributes rising student loan balances to the increasing cost of higher education. She continues:
“Even with this number moving upward, the data is showing a decrease of delinquencies, which means that consumers are managing their loan payments better than they have in the past.”
Other findings from Experian’s analysis include:
- 13.4 percent of U.S. consumers, spanning from the Silent Generation to Generation Z, have at least one student loan on file.
- The average total student loan balance is $34,144.
- The average number of student loans per person is 3.7.
- Consumers with student loans have an average VantageScore credit score that is 25 points lower than the national average of 675. Experian did not address FICO credit scores.
Perhaps the best way to minimize student loan debt is to do everything you can to reduce the cost of college before taking out loans. Of course, that’s little help to the millions of Americans already collectively carrying that $1.4 trillion in student loan debt.
Still, there is a lot you can do to pay down your share of that debt faster, including the following:
1. Know your loans. A 2016 LendEDU study found that few students know the basics of their own loans. For example, only 7.9 percent of the students surveyed knew their current interest rates, and only 6.1 percent knew their repayment terms. Only about 4 percent knew that student loan refinancing was an option after graduation.
2. Track your finances. Millennial Richard Meadows paid off his student loans by his mid-20s in part by tracking his net worth every month. You could start by simply tracking how much money you earn and spend each month. If you don’t track those basics, you could be spending more than you make without realizing it — no way to fast-track debt repayment.
3. Ask for forgiveness. As Money Talks News founder Stacy Johnson details in “Ask Stacy: Can I Have My Student Loans Forgiven?” some folks may be able to have their loans forgiven, discharged or canceled. The options are greater with government loans than private loans.
4. Talk to your employer — or find a new one. A small but growing number of companies help their employees pay off student loans. Fidelity Investments, for example, joined their ranks last year by launching a student loan assistance program that puts $2,000 toward eligible employees’ student loans each year, up to a total of $10,000.
5. Seek professional help. If you feel overwhelmed by debt, consider calling a debt management expert. A reputable expert may be able to help you by lowering your interest rates, finding forgiveness programs and stopping wage garnishment and tax liens.
What’s your take on America’s soaring student loan debt? Sound off below or on our Facebook page.
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When to Use a Personal Loan to Pay for a Student Loan
Staring at the mound of student loan you have might make your head spin. Instead of slowly making monthly payments on it, you had the idea of taking out a personal, unsecured loan to pay it off. Understanding when this action is the right one to take involves thoroughly analyzing your financial situation and the two types of loans.
Comparing the interest rates of your student loan to the personal loan is of utmost importance. If you have $70,000 in student loans, you will still need a $70,000 personal loan to pay it off entirely. When the interest rate is higher on the personal loan than on the student loan, the former option doesn't make sense for people who still plan to make monthly payments. You will end up paying more money on the loan over time.
While paying back your student loan is irritating, you also likely have a lengthy period of time in which to do so. Find out how long you would have to pay the personal loan back. In the hypothetical situation described above, you could end up having only a couple of years to pay back $70,000 instead of well over a decade. Reviewing your personal budget and income is crucial before deciding to go into this type of plan.
When you've decided that the interest rates and the pay period could work for you, you need to qualify for the loan. People who cannot qualify for secured loans may be able to find another alternative with this plan. The exact qualification stipulations will depend upon the specific loan provider. You will likely need to have a certain credit score to qualify for the loan.
If you have other types of debt, you might want to consolidate it all into one loan and make one lower monthly payment. For example, you could take out a personal loan that would cover the sum of your student loan and your credit card debt. Taking all of the financial factors into account, you could end up paying less in interest over time with this method. This type of personal loan can help you to get out of debt faster and to see your credit scores climb.
Using a personal loan to pay for a student loan is a smart idea when you understand all of the terms, have researched the particular agreement and need to find a better way to eliminate all of the debt in your life.
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If I talk about the best strategy for paying off Student’s Loan, then I would say this. At the first place, do not to go for any Loan for your higher studies, if at all possible then only, else, offcourse, study is more important.
Now, you need to apply for Student’s loan for your studies in India or abroad. Then make sure, you opt a bank which doesn’t charge you more than the industry trends. Such banks are PSU bank, like State Bank of India, Central Bank of India, etc.
Other than PSU Banks, you always have an option to apply for education loan to private banks like HDFC, ICICI, etc. Though you definitely would get better services from these banks, but, beware of their high charges for the services. So, before you decide to opt any bank, you may like to do some research about the facilities, charges, Rate of Interest and repayment terms.
Student’s loan repayments typically consist of both interest and a principal. The best plan for paying off Student’s Loan is by paying the interest from month 1 that is the month next to the one when you got the loan sanctioned. Because, during the Moratorium period, the interest which is applied on your principal amount is simple interest. Therefore, this amount of interest is always lower and better to pay off on monthly basis.
If you keep paying the interest on monthly basis, then, when your repayment starts, you are left with the principal amount only. This principal amount never becomes a burden for you, and it’ll also save you money in the long run, since you won’t pay as much in interest, hence, its really easy for you to pay off your Education Loan.
If you are planning not to pay off your Student’s Loan, beware. Let me warn you, it would definitely impact your Credit-ability. Repayment behavior on Education loans is reported to the credit reporting agencies. So if you make your payments as required by the due date, you will build a good credit history. If you make your payments late, or skip payments, you will build a bad credit history.
There are two advantages, however, to paying off your Education Loan faster, although they’re not just on your credit score. You’ll improve your debt-to-income ratio, which is something banks check before making a big loan like a Mortgage or Home Loan.
Ohh…I forgot to mention, If you repay your Education Loan timely then, you are eligible for a Tax rebate for the interest you pay on an education loan under Section 80(E) of the Income Tax Act 1961. Your parents can claim a deduction when they take a loan for your education or you can claim a deduction when you take a loan for your own, your spouse’s or your children’s education.
Since the period of deduction is limited to 8 years and there is no cap on the amount of deduction, it is prudent to wrap up your loan in 8 years and claim as much interest as possible, of course, when you are able to afford the outgo. Note that, the law does not specify whether this higher education has to be undertaken in India or outside India.
There is a Golden rule about Loans. Either you don’t borrow any loan, or if you do, then do not try to skip the repayment of the same. Because, Skipping the repayments will definitely ruin your future Credit-ability. And, to be really honest, you never know, when your Credit-ability would become your prime importance.
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I am a Banker by profession and a part time Blogger