Paying Down Student Loans
Nov 05, 2015
Graduating from college is exciting. Having to repay student loan debt, not so much. According to a recent analysis of government data, average loan debt for 2015 graduates was approximately $35,000.* Finding ways to get out of debt faster should be a priority. Here are some strategies that may help reduce student debt sooner.
On Track with a Budget
Everyone — not just new college grads — should have a spending plan that shows income and expenses and allocates money accordingly. Creating a budget is the best way to see how much discretionary money is available to apply toward a student loan and save for retirement at the same time.
Paying from the Get-go
Borrowers may have a grace period (usually six months) after graduation before loan payments are due. But starting the repayment process as soon as possible saves on borrowing costs, since interest that accrues during that time is added to the loan principal. Even paying only the interest can save money.
Borrowers in certain career fields, including public service and education, may be eligible to have their loans partially or completely forgiven. Length of service and other eligibility requirements apply. Information on loan forgiveness programs is available at www.studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation.
Since federal and private student loans can be prepaid without penalty, paying more than the required minimum every month — even if it’s a small amount — can help reduce the balance faster. Borrowers should specify in writing that the extra amount should be applied to the loan principal. To save more in overall interest, extra payments should first go to the loan with the highest interest rate.
A Break on Taxes
Student loan interest of up to $2,500 may be deductible on a borrower’s federal income-tax return. Using a tax refund to make extra loan payments can be a valuable strategy.
Borrowers might consider using a bonus at work or gifts of cash to help prepay student loans.
- The Wall Street Journal, May 8, 2015
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