GMR 80: Pay Off Student Loans Cheaper and Faster

Episode 80
Student loans can delay or keep you from many of the good things you’d like to do. That’s why it’s so important to pay off your student loans as quickly as possible. On this episode of Getting Money Right, we’re sharing 6 steps to help you pay off your student loans cheaper and faster.

SHOW NOTES


PAYING OFF STUDENT LOANS

Most graduates will need to start making payments starting 6 months after graduation.  It is tempting to try to make those payments as low as possible so you can do all the other things you want to do, but don’t forget that if you choose an alternative repayment option for your student loans, you typically pay much more in interest over the long term. Even though you make lower monthly payments, you pay interest for a longer period of time, which really adds up.

1. Start by knowing the details about each loan

  • The first step to building a strategy to paying down student loan debt is knowing how much you owe across all your different loans. 

  • If you’re unsure of how many loans you have, go to the National Student Loan Data System for info on your federal student loans. 

  • If you have a private student loans, check your credit reports.  You loans are tracked on your credit report. Collect the information about each of your student loans, make a list to track:

    • Type of Loan (Federal or Private)

    • Fixed-Rate or Variable-Rate

    • Balance

    • Interest Rates

    • Term Length

    • Total Due (w/ Interest)

    • Grace Period (Interest Accrues)

 

2. Know the pros and cons of refinancing (or consolidating) student loans to lower your monthly payment.

Many people think about consolidating or refinance high-interest rate student loans.  Refinancing can help you lower your monthly payments, but can also increase the term length and interest rates. 

  • ·You will also lose your federal borrower benefits (e.g. grace period, Perkins loan forgiveness, federal loan protections, etc). 

  • Consolidation or refinancing your student loans can be a great option for you — just know how it will impact you financially.  Always do the math and make sure you understand what refinancing will help you gain and what it might make you lose!

 

3. Pay more than the minimum required payment

Look at your budget and see what you can reallocate to increase your student loan payments

  • Don’t have a budget?  Listen to GMR episodes 2 and 3 to create a budget and 6-9 to know more about how to allocate the right amounts to each area of your spending.

  • A budget will not only help you to pay down your student loans faster, it will help you live well, create margin, build wealth, and secure your future.

  • Paying more than the minimum payment will help by decreasing the amount of interest you pay and the time it will take to pay your loans off completely.  Who doesn’t love that!

  • Make sure any extra payments are designated to pay down the principal part of your loans.  You don’t want the lender to apply the extra payment toward a future credit, you want the balance to drop every time you make that extra payment.

 

4. Stay motivated by staying focused on your progress

  • Have a way to know how you’re doing by having a visual way to see your progress.  Use a pay off chart or some visual way to help you see your balances drop.

  • Use a debt snowball type of debt repayment plan to decrease the interest and the time to pay off.  See debt payoff plan on leosabo.com.

 

5. Make bi-weekly payments or pay extra payments every so often

  • By making more payments your principal balance will go down faster saving you time and money paid on interest.

  • Making bi-weekly payments decreases your interest because the principal balance is reduced every time you make a payment; you pay less interest because the balance is less.

  • Apply every tax refund and every raise and bonus to pay down the student loans.

    • Most people waste their tax refund because they have no plan for it.  There’s always something you’re going to think you MUST have when extra income comes in; make sure you designate it before it comes!

One the best ways to say goodbye to your student loans is to have them forgiven.  

6. Consider student loan forgiveness programs.

If you have private student loans there are no forgiveness programs, so it’s important to knock these out first if you have other loans that do qualify and you plan to engage with a student loan forgiveness program.

Here are some of the most well-known programs:

  • Public Service Loan Forgiveness Program is available if you work for the government or a nonprofit, no matter what your job is.  

  • Stafford Loan Forgiveness Program for Teachers is for professional teachers who work at a nonprofit or a public school.

  • Perkins Loan Cancellation is for certain public servants, such as teachers, law officers, military, medical providers, and firefighters. You must service low-income families, special needs students, or teach a subject with a shortage of qualified teachers. So, if you’re a teacher at a nonprofit or a public school, you may qualify for more than one of these programs.

  • There are also state-sponsored student loan forgiveness programs, especially if you teach in a high-need area. To learn more, check out the American Federation of Teachers Loan Forgiveness and Funding Opportunities Database.

  • There are organizations such as Nurse Corps that offer scholarships and loan forgiveness to nursing students, faculty, and nurses who work in high-need areas. 


Forgiveness typically requires paying loans for certain periods. The Public Service Loan Forgiveness program wipes out your remaining balance after you pay your loans for at least 10 years or make 120 payments. 

  • You must work full-time for an eligible public service or nonprofit employer, but it doesn’t have to be consecutive years of service.

  • For instance, if you leave public service for some years and eventually return to an eligible employer, your previous qualifying payments still count toward the forgiveness requirement of 120.

  • With the teacher program, you must complete five consecutive years of work, with some exceptions, such as taking medical leave or being deployed for military service. 

  • While paying a loan for five years may sound better than 10 years, in some cases, it may actually cost more than the public service option. It depends on how much student loan debt you have. 

    • The amount of forgiven student loan debt varies by program.

    • With the public service program, you can have any amount of student loan debt forgiven. 

      • For instance, if you have $200,000 in student loans, the program wipes them out after the 10-year payment requirement.

  • Having an unlimited amount of student loans forgiven is fantastic because it gives students a huge incentive to go into fields that require expensive education but may not pay big salaries.

  • However, for the Stafford Loans forgiveness program for teachers there is a debt cap. It only forgives up to $5,000 or up to $17,500 of student loans.

  • The amount of forgiveness you get depends on variables such as the subject you teach, your degree, and when you took out your loans. Highly qualified teachers—such as those in math, science, or special education—are eligible for the highest amount of forgiveness.

  • Highly qualified teachers, such as those in math, science, or special education, are eligible for the highest amount of forgiveness. 

 

Perkins loan program are available to both undergraduates and graduate students and are funded by schools using government funds.

  • The Federal Perkins Loan Cancellation program wipes out your student loans based on years of service, not on how many years you’ve made loan payments. It eliminates 100% of Perkins debt if you complete five years of qualifying public service.

  • Not all federal student loans qualify for forgiveness, so you will want to review the type of loan you have and specific program

RESOURCES


Budgeting and Debt Elimination Tools
Jesus on Money by David Thompson - stewardshippastors.com
GMR 2: Creating A Financial Plan for Your Life Part 1
GMR 3: Creating A Financial Plan for Your Life Part 2
GMR 6: Breaking Down Budget Categories - Housing
GMR 7: Breaking Down Budget Categories - Food & Transportation
GMR 8: Breaking Down Budget Categories - Debt, Miscellaneous & Recreation
GMR 9: Breaking Down Budget Categories - Child Expenses, Personal, Saving & Giving

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