An overwhelming majority of those who seek and complete higher level education require the assistance of student loans. College graduates typically have a 6 month grace period after graduation day until they need to begin making payments. Thinking with the end in mind is a great way to have a clear goal to reduce the burden of student loans. Once a goal is set, a financial plan can be created to make sure you have a healthy financial future. These are several tips to help navigate the student loan payoff process:
- Pay a higher amount than your minimum payment
By paying more than the minimum, you can pay off your debt faster. There are no penalties to paying higher payments and no benefit for keeping the loans around. The loans with the highest interest rates are best to eliminate first and will give you the most bang for your buck.
- Paying off loan interest while the student is enrolled in college
All student loans carry a rate of interest over your principal balance. For unsubsidized loans, interest accrues as soon as the loan is taken out. One strategy for these is to begin paying off interest while still in school. Automatic monthly payments can be linked to a bank account to take advantage of paying interest before college graduation.
- Have a reasonable budget
There are several cases in which finding an increase in income can be a challenge. Reducing and cutting back on unnecessary expenses is a great way to add more income. For example, reducing the amount of times you go out to eat in a week and saving more of your income instead of spending more.
- Take advantage of tax credits
Loan servicing companies distribute 1098-E forms at tax time – make sure to report these! Depending on the interest you’ve paid over the prior year, you may be able to secure a credit as high as $2,500. A credit, unlike a deduction, is a dollar-for-dollar reduction in your tax liability.
- Refinancing your student loans
Shop around and visit the various student loan refinancing companies. By refinancing a student loan, you can potentially secure a lower rate of interest, a preferred payback term, and more manageable monthly payments. An Income Repayment Plan (ICP) is a potential option to help reduce federal student loan payments. If student loan payments are causing financial burdens compared to your income, an ICP may provide additional aid by adjusting monthly payments based on your discretionary income.