Millions of students take out student loans each year in order to pay for their education.
Likewise, a majority of them do not think much about repaying these loans until their deferment ends 6 months after they graduate.
At that point, they then realize that their loans have accrued plenty of interest and repaying the loans will be more difficult than they previously thought.
This happens to thousands of students each year, but there is a simple way to pay off student loans without allowing interest to accrue over the course of your college education.
Step 1: Make some form of payment on your loans regularly while still in school
The only loans that do not accrue interest while a student is in school are the subsidized Stafford loans because the government takes care of it.
Therefore, a student should be very aware of how much interest a loan can gain over the course of 4 years – the price can be anywhere from hundreds of dollars to a few thousand. Making payments while still in school is a great idea for students because…
- A) You aren’t obligated to make payments, but you can pay off any amount of a loan at any time.
- B) You can pay off just the accrued interest or a little bit more to slowly reduce your loan.
- C) If you choose to pay some of the loans off now, your payments will be much easier to handle later.
Without a doubt, paying off interest (at the minimum) will help any student when the time comes to make monthly payments. It might not be plausible for every student, but paying even more than monthly interest is extremely smart.
A student could pay off a few hundred dollars on a $5,000 loan each year, and the loan could be reduced to less than $3,500 when it comes time to make payments.
Step 2: Compare your options when the loans need to be repaid
Some loans – but not all – have a fixed $50.00 monthly payment. As an example, this is how the Stafford loan works.
Most loans, however, have a different monthly payment requirement, which can be much higher. Luckily, there are a few ways a student can change their minimum monthly payments for student loans, such as:
- A) There are various repayment options for federal student loans, such as the option that bases monthly payments upon a student’s income.
- B) Loan consolidation won’t reduce the principal balance on a loan, but it will lower monthly payments and give the loan a fixed interest rate.
- C) You can and should negotiate with the loan company if you need a different monthly payment.
Obviously, having a monthly payment based upon your income is extremely convenient, but this only works for federal student loans. People with other loans, however, should consider loan consolidation because it combines all of a student’s loans with a set interest rate and a lower monthly payment than the one they had before.
Unfortunately, negotiation is an option that may not always work, since the provider has no obligation to change the loan repayment terms, but it is worth a try for students.
Step 3: Figure out how you will pay your student loans back
The money with which a student pays back their loans differs from person to person. Of course, most students will simply use their paychecks to take care of loan payments.
Some students – on the other hand – have other forms of income with which they can repay loans. The best ways to take care of loan payments with funds from sources other than jobs include:
- Money from selling old items that you no longer use.
- Money earned from doing a side job.
- Money from family members that you receive for whatever reason.
- Plenty of others.
Step 4: Make sure to set aside the money to repay your loans with
It might be an obvious statement, but many students don’t think about their loans once they have to repay them, so they end up lacking the money to make their payments each month.
Therefore, it’s smart to always have a reminder in place for you so that you make your loan payments on time because the consequences of not doing so are pretty severe.
The reminder should always list your monthly due date and the amount you intend to pay that month. It also helps if you set aside the money for the loan by either withdrawing it from your checking account beforehand or simply sending in the payment a few days early.
Repaying student loans is a very simple process, but it involves some financial skills. When a student first takes out the loan, they usually won’t think of the implications they’ll face if they just let the loans accrue tons of interest over the years.
In the following years, they’ll see that their loan balances are huge and that it will take them years to repay the money.
Paying off slightly more than the monthly interest on the loans while still in school will help any student to reduce their loan balance.
By the time they graduate and must repay their loans, they will find that they can pay them off quickly and efficiently without spending a ton of extra money on interest charges.
Those that are repaying the loans currently will find that they should try to use different sources of money to repay their loans.
Also, a person should consolidate their loans or change payment plans in order to reduce monthly payments if they are too high. Negotiation with the loan company is possible, but it should be a last resort.
As for actually making the monthly payments, every student should be careful to make sure that they have enough money to make their payments and still take care of other expenses. Many students fail to do this and they end up in trouble each month.