American students and their parents continue to take out student loans to pay for their undergraduate and graduate degrees.
People who are attending college are paying for tuition, room and board, books, and other necessities by taking out student loans or using credit cards.
The Federal Reserve said in a report that over half of adults who are under the age of 30 “took on some debt to pay for their education” in 2019. The survey in the report showed that the typical amount of debt reported in the survey was between $20,000 and $24,999.
The good news was that “most borrowers were current on their payments or had successfully paid off their loans,” according to the Federal Reserve report.
One alarming trend is that 23% of people surveyed who had debt from taking college or university classes said they paid for classes and other expenses from a credit card.
Paying for college has become more expensive as tuition costs have continued to rise each year. For the 2019-2020 academic year, the tuition for full-time in-state students attending public colleges and universities was $10,440, according to the College Board. Tuition at private colleges and universities for the 2019-2020 academic year was $36,880.
In 2018, the Federal Reserve reported that over half of people who attended college had to rely on debt to pay for classes and other costs. Based on data from Student Loan Hero, among the class that graduated from college in 2019, 69% of those college students used student loans to pay for tuition.
These graduates had an average student loan amount of $29,900, including both federal and private student loans. Some of their parents took out loans to help pay for their education- 14% of parents borrowed an average of $37,200 in federal parent PLUS loans, according to Student Loan Hero.
Americans now owe over $1.6 trillion in student loans—around 45 million people, both graduates and their parents, have amassed a large amount of debt to pay for higher education.
Paying Down Student Debt Faster
Borrowers can maximize their financial resources and accelerate their repayment schedule in a few different ways.
Some options might include making extra payments by creating a budget, cutting expenses, getting a part-time gig, paying down other debt, and refinancing student loans.
Creating a budget can help borrowers see and understand all their expenses. A budget could make someone more aware of how much they are spending on eating out or entertainment each month.
Being able to refer to a budget can come in handy when you’re paying bills each month. There are plenty of options to choose from when it comes to budgeting and tracking spending.
After you have created a budget, examine your monthly expenses. One way to do this is to look at your expenses by different categories, such as bills, daily expenses such as parking, necessities such as groceries, and non-essential items such as entertainment.
Going through each category can help a consumer decide what is a priority. It can also help remind you of expenses you’re paying each month, but not using often such as a streaming movie or TV service.
Consider negotiating with the service provider, such as an internet or cable company to see if there are less expensive options or if they are offering special deals currently.
Making Extra Payments
Making extra payments whenever borrowers can afford can help speed up the repayment process.
Neither federal or private student loans have prepayment penalties, which means borrowers won’t be penalized for making extra payments or paying their loan off ahead of schedule.
When making over payments, check in with the loan servicer to confirm how it will be applied to the loan or loans. For example, a borrower with multiple loans may choose to spread the extra payments evenly among each loan. Others may choose to concentrate on the loan with the highest balance or the highest interest rate.
Another note, lenders may first apply overpayments to the interest accrued on the loan. Borrowers may have to request the extra payment be applied to the principal balance of the loan. The important thing is to be sure you understand exactly where the payment is going.
Focusing on High Interest Debt
When it comes to students and debt, sometimes it’s more than just student loans. Paying down other debt such as credit cards with higher interest rates or personal loans can also lower your overall debt.
While some people prefer to pay off their debt with the lowest balance, other people prefer to start tackling the one with the highest interest rate.
Here are some ideas that could help someone pay off their credit cards or personal loans sooner.
• Making more than the minimum payment. Even an extra $25 or $50 a month adds up.
• Contacting the credit card company and asking for a lower interest rate.
• Using automatic payments to avoid missing a payment and incurring a late fee.
• Stopping using the credit card for additional purchases.
• Obtaining another credit card with a lower interest rate and transferring all or a portion of the balance.
Some lenders may charge a prepayment penalty for some types of loans or credit, so double check the terms to be sure.
Getting a Second Job or Side Hustle
One way to help pay down student loans faster is to obtain a second part-time job. The additional income from the second job could go towards extra payments on the loan.
Finding a second job could be accomplished by asking your friends or co-workers for referrals. They might know of a small business or person who needs a helping hand or temporary work on a short-term project.
Depending on the gig, some of the work could be completed online or during weekends.
Checking job boards, social media, and with your current network could net you some temporary gigs such as babysitting, pet sitting dogs or cats, or running errands for a professional.
Another strategy is to sell any unused items that are sitting around in your home. Cleaning out your closet or garage could help people come up with some extra income that can be used to make an extra payment or two.
Selling musical instruments, electronics, clothing, or shoes online or at a resale shop is one way to sell the items quickly. Social media is another way to sell your unwanted guitar or electronic tablet that is just collecting dust.
Making Lump Sum Payments
Sometimes, making consistent extra payments on a loan isn’t an option. In that case, consider making a lump sum payment whenever you get a larger amount of money from a tax refund, birthday gift, or bonus at work.
Apply all or a portion of the extra money to a payment. Making extra payments applied to the principal can help reduce the amount of interest paid in the long term.
Refinancing Student Loans
Making changes to your budget, slashing your expenses, and getting another gig could help you pay down your student loans faster. Focus on the improvements you have made and create both short-term and longer term financial goals. Refinancing is another option that could potentially help a borrower speed up their repayment.
Student loan refinancing could help qualified borrowers secure a lower interest rate, which also means that more of the money paid each month will go towards the amount that was originally borrowed—the principal value.
This could help students and their parents finish paying off their student loans sooner. A lower interest rate could also reduce the amount of money spent in interest over the life of the loan.
Refinancing can also help make monthly payments more affordable, which could be helpful to people with a tight budget.
However, getting a lower monthly payment when refinancing could be a result of extending the repayment term, which would ultimately mean the loan costs more in the long run.
Refinancing also allows borrowers with multiple loans to combine them into a single loan. This can help streamline the repayment process, since the borrower will be repaying a single loan with a single lender, instead of making multiple payments each month, sometimes to different lenders.
A student loan refinancing calculator can help give you an idea of the amount of your new monthly payments. Any extra money saved each month could be used to pay for other debt such as credit cards or towards your savings for an emergency, a down payment for a car or house, or other goals such as a vacation.
SoFi gives people the option to refinance both federal and private loans. Before you refinance your federal student loans, consider whether keeping the repayment benefits that they offer, such as forgiveness programs or income-driven repayment plans, could be useful to you in the future. When you refinance with a private lender like SoFi, those benefits are no longer available.
Borrowers can choose from either variable or fixed rate refinancing loans that are better for your current financial situation. A fixed rate means that the interest rate never changes over the life of a loan and the monthly payments are predictable.
With a variable rate loan, the interest rate could fluctuate over the life of the loan. This can make it more challenging to budget for other bills and expenses.
The application process at SoFi can be completed easily online and there are absolutely no hidden fees.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.