Now that you have a clear understanding of your loans, it’s time to develop a strategy to pay them off quickly and smoothly — or get them forgiven ASAP. Here are some tips to get you started.
Tip 1: Know your loans
First, make a comprehensive list of all your student loans, including whether they’re private or federal, monthly payment and due date, current and principal balances, interest rates, and servicer information.
For federal loans, it’s also helpful to know the loan type. Eligibility for certain student loan forgiveness and repayment options change depending on whether you borrowed loans from the Direct Loan Program, Federal Perkins Loan Program, or Federal Family Education Loan Program.
Tip 2: Review your budget
Next, assess your budget and explore different strategies for reducing debt to determine how your student loans fit into your finances. If necessary, request a different due date that aligns better with your pay schedule and makes it easier for you to make your payments on time and in full.
Tip 3: Check your repayment options
Make sure your federal repayment plan is the best one for your situation by using the Education Department’s Loan Simulator to compare plans by monthly payment, total interest, and more.
Tip 4: Enroll in autopay
Set up a direct debit or autopay to save time and money. Most federal loans and many private lenders offer a 0.25% interest rate discount for borrowers who sign up for automatic payments.
Tip 5: Make extra payments when you can
Consider making extra payments to get out of debt faster and save money on interest. If you can afford to do so, tell your servicer to apply extra payments to your principal only to maximize the benefit. While you won’t get a discount for paying student loans early, you can save money in interest.
Keep in mind that this strategy only makes sense if you’re not enrolled in an income-driven repayment plan. Making extra payments while in an income-based repayment plan likely won’t help you get rid of your debt sooner because the money would go almost entirely to interest, depending on your loan balance and payment amount.
Tip 6: Keep your information updated
Stay in touch with your servicer by keeping them updated with your current contact information. Make sure to open their mail and answer their calls promptly to discuss issues before they escalate.
Tip 7: Keep good records
Maintain good records by saving all mail from your servicer and taking notes during phone conversations, including the date, name of the person you spoke with, questions asked, and the responses they gave you.
Tip 8: Claim the tax deduction
Don’t forget to claim your student loan interest on your tax return, as you may be eligible to claim up to $2,500 of the student loan interest you paid in a given year.
Tip 9: Check your interest rates
Private student loans can come with either fixed or variable interest rates. While variable rates can be attractive in a low-interest environment, they can become problematic during inflationary periods.
Banks and credit unions increase the cost of borrowing money during such times, leading to a spike in variable rates.
In the last two years alone, many borrowers have seen their variable rates soar from 3% to over 11%, causing a surge in their student loan payments and putting them at risk of delinquency.
Refinancing into a new loan with a lower, fixed interest rate can avoid adding thousands of dollars in interest to your student loan debt. To do so, use an online marketplace such as Credible to shop for multiple lenders simultaneously without damaging your credit score.