Bogged Down By College Loans? Here’s How to Pay Them Off Faster
October 7, 2021
If you borrowed money to attend college, you are not alone. According to The Federal Reserve’s report, Economic Well-Being of U.S. Households in 2020, nearly one-third of all American students have student loan debt. Here are some strategies to pay off your student loan debt faster.
Student loan debt was at $1.57 trillion in the second quarter of 2021, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. Here are some ways to start paying off your debt faster.
Pay more toward the loan principal
Although you don’t have to start paying back federal student loans until six months after graduation, the sooner you can begin making payments, the better. Making additional payments beyond the set amount will help you pay off the loan faster.
However, student loan servicers, which collect your payments, may apply the extra amount to next month’s payment, advancing your next due date, but not helping you pay off the loans faster. Be sure to request that your servicer apply extra payments to the principal loan balance.
Refinance your loans
Another way to pay off your student loans faster is by refinancing them into a single private loan, preferably at a lower interest rate. Although your monthly payment may increase, applying for a shorter loan term will allow you to pay the debt off faster and save you money in interest.
Sign up for auto pay
Enrolling your federal student loan in auto pay can save you money, too. Many student loan servicers offer a quarter-point interest rate discount if you set up automatic payments from your financial account.
Put extra earned money toward your loan principal
Finally, applying any extra funds you earn toward the principal loan balance will help reduce it more quickly. Consider applying funds from a raise at work, a tax refund, or extra income earned in addition to your full-time job.
To help members pay back student loans faster, MSUFCU is testing an app called ChangEd which rounds up everyday purchases and puts the extra funds toward the member’s student loans. For instance, if you spend $2.45 on your next cup of coffee, $0.55 will be rounded up and put toward your student loans. Members can participate in the testing of this app by signing up at msufcu.org/thelab.
Tags: Borrowing Money, Money Management, Tips and Tricks