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.
Paying for college has become more expensive as tuition costs have continued to rise each year. For the 2022-2023 academic year, the tuition for full-time in-state students attending public colleges and universities was $10,950, according to the College Board. Tuition at private colleges and universities for the 2022-2023 academic year was $39,400.
The average federal student loan debt per person in 2023 is $37,338. Private student loan debt is almost $55,000 per borrower.
Americans now owe over $1.6 trillion in student loans. More than 43 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.
Recommended: 23 Ways to Make Extra Income From Home
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.
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 that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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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.
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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.