Tips for Paying Off Your Student Loans | Ion Bank
Pay off your student loans

People of all ages face a common challenge: student loan debt. The average borrower owes around $30,000 post-graduation and paying off this balance requires a strategy from the time you finish school. To make a dent in your student loan debt, begin with these tips.

1. Have a Realistic Timeline

Between living expenses and costs associated with food, healthcare and car ownership, it can take far longer to pay off student loan debt than expected. Realistically, it may take anywhere from a decade to 30 years to fully pay off your loan balance.

Factors shortening or extending this timeline include total balance owed, interest rates, your repayment plan and annual income. For example, following your loan’s general timeline typically results in paying off the balance after 10 years.

Income-driven repayment plans, in which you put 10 to 20 percent of your discretionary income toward your balance, help the average borrower pay their loans in 10 to 20 years. Extended or consolidated payment plans can draw your timeline out to 30 years.

In addition to these factors, understand the role of interest. Higher interest rates generally mean you contribute less toward the principal on a monthly basis, which also extends your repayment timeline.

Along with these factors, view your student loan debt as just one expense. Experts advise to first pay off credit cards and personal loans before increasing monthly payments for your student loan balance. At this point, attempt to make the minimum monthly payment. If you cannot do this, discuss repayment options with your lender, which may involve refinancing.

2. Make Larger Payments

When you make larger payments, it puts more of your money toward the principal and you pay less interest long term. While you won’t be penalized for an early payment, your lender may sense a pattern and move up the loan’s due date or increase your monthly balance.

If you take this approach, avoid advancing your student loan due date. Your lender may start applying your amount toward accrued interest rather than the principal. Instead, notify your servicer that your overpayment should go toward the principal and to keep your loan’s schedule as initially stated.

In the case you’re dealing with multiple student loans, first increase your monthly payment for those with higher interest rates.

3. Pay Off Interest

The amount of interest owed varies. For non-government subsidized loans, interest starts to accrue while you’re in school and even during your grace period. This grows the overall loan balance, which is why some people find they haven’t made a significant dent after years of repayment.

Aim to make more than the monthly payment on government subsidized loans. For non-government subsidized loans, students can take on a part-time job and save their earnings to put toward the interest once payments begin.

4. Create a Budget

Know how much money you take home on a monthly basis, your total expenses and what you can put toward student loans. From here, think about how much you can allocate for your monthly student loan payment.

5. Know When to Refinance

While refinancing can extend your payment timeline, it can also consolidate multiple loans into a single private loan, typically with a lower monthly interest rate and shorter term. You’ll put more of your income toward your outstanding balance and can pay it off faster.

Understand that this option requires you to make consistent payments on all loans for years and to have a solid income history. Your refinanced loan also cancels any income-driven repayment plan and cannot be used with a Public Service Loan Forgiveness program.

6. Use Autopay

Create a consistent autopay schedule, especially if you have a flat, low-interest payment. This ensures your income goes toward your loan and eliminates missed payments. If you have variable monthly income and finances, autopay helps you gradually pay off the loans.

7. Consider Loan Forgiveness Programs

In addition to the plan announced by President Biden for those with incomes under $125,000 or $250,000 if married and filing a joint tax return, other forgiveness plans include:

  • Income-driven repayment, which involves working with your lender to create a payment plan based on your current and future income. Any outstanding balance after a 20 or 25-year term is forgiven.
  • Public Service Loan Forgiveness, for those employed full time in a public service position looking to switch to an income-driven plan.
  • Teacher Loan Forgiveness, for those teaching full time for at least five consecutive years after 1997 in a lower-income school or similar educational service agency.

8. Additional Sources of Income

See if you can put more money toward your outstanding student loan balance through one of the following approaches:

  • Take advantage of an employer’s forgiveness, tuition reimbursement or loan repayment plan
  • Ask your employer for a raise
  • Take on a side hustle or second job
  • Use the student loan interest deduction for any interest you paid over the past year, based on income

Use Ion Bank’s online banking and bill pay services to better manage your monthly student loan payments and establish a budget. To learn more, contact us today.

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