New Year’s resolutions tend to skew towards either the “lose weight” or the “save money” variety. Just like losing that holiday “happy weight,” paying back students loans is an arduous process that seems never ending.
Making one small and measurable change in 2017 can transform your student loan situation, supercharging your payback efforts and putting you on much better standing this time next year. Be specific so that you don’t lose focus, and measure your progress as motivation. Consider these New Year’s resolutions to focus on, depending on what stage of the borrowing process you are in.
For Students Still Enrolled
Don’t Take on More Debt Than You Need
Students often qualify to borrow more money from the federal government than they actually need for tuition. It can be really tempting to take out a couple extra thousand dollars to cover a nicer dorm room or a Spring Break trip. But over the course of the loan, you could pay back three times what you take out. That means that a $1000 plane ticket will likely cost at least $3000 when it’s time to pay it back. Borrowing an extra $1000 every year for four years means $4,000 in tangible money and $12,000 in debt. Resolving to only take out the amount you need is a responsible way to manage your student loan debt.
Use Part-Time Earnings to Pay Interest
Although some federal loans have subsidized interest rates, unsubsidized loans are accumulating interest the entire time that you are in school and not making payments. That interest will capitalize, or get added to the total amount that you owe, which means that you have a higher amount of money that is subject to interest. As long as you aren’t making payments, the amount of money you pay in interest actually increases every year. Using part-time earnings to pay this interest off before the loans capitalizes will save you a significant portion of the total money you would have otherwise paid back over the lifetime of the loan.
Know How Much You are Borrowing
Keeping track of loan information unsupervised is not something that most 18 to 20 year olds can do effectively. A couple thousand this semester, a couple thousand that semester: It’s easy to land $28,400 (the average) in debt without really being sure how you got there. Keeping track of exactly how much you have borrowed at all times will make it easier to reign in your loan requests.
For Borrowers Making Current Payments
Pay Extra Every Month
Every month, your student loan payment covers all of the interest on the account before it pays principle. The higher total amount of debt that you owe, the higher amount of interest you will have to pay before touching the owed amount. Making prepayments each month saves you an exponentially larger amount of money than you put into it.
If paying back student loans were an investment, we could say that the more you pay each month, the higher ROI you’d experience. The faster that you can pay off accrued interest and reduce the principal balance, the less interest you can be charged for as long as you hold that loan. Even a payment increase of $25 per month will likely have a profound effect on the amount you pay back over 10 years.
>> Read More: Check out our student loan prepayment and payoff calculator.
Look Into Refinancing at a Lower Rate
Federal loans have fixed interest rates depending on when the money was issued. For some borrowers, refinancing that debt with one of the best companies to refinance student loans can be a smart way to lock in a lower interest rate or more favorable loan terms. This won’t be the case for all borrowers because federal loans offer many more flexible repayment plans and protections for borrowers who have trouble paying. Private loans could potentially have a shorter payback period than federal loans, which could mean a much larger monthly payment. However, if you qualify and if you are comfortable with private loan terms, refinancing at a lower interest rate could save you a significant amount of money.
Author: Jeff Gitlen
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