7 Creative Ways To Pay Off Student Loans
Going to college on a student loan can be very convenient, but paying back the loan not so much. In 2020 the US had $1.6 trillion student debt and the percentage of students attending college was 54%.
A student loan requires payback that comprises of not only the original borrowed amount but also the interest that has accumulated over the years if you let it sit and build up.
Let’s dive further into what student loans look like and some of the creative ways to pay off student loans quickly.
Types of Student Loans
There are three different types of student loans available to students. Each of the following loan types differ in the way student loan repayments are to be made.
- Direct Subsidized Loans:
The government covers the interest on the student loan until the repayment period. After this period, the interest and loan repayment becomes the responsibility of the student.
- Direct Unsubsidized Loans:
The student doesn’t demonstrate financial need. The government is not responsible for any interest that arises on the loan.
- Direct PLUS Loans:
Parents take out the loans with the student and the loan can help pay for education expenses not covered by any other financial aid.
Why You Should Pay Back the Student Loan as Early as Possible
Following the grace period on a student loan, interest starts to accumulate over the borrowed amount. By paying off the loan early you can save thousands of dollars in interest.
In many cases, life happens and the interest can keep accumulating to significant amounts before you know it.
Another frequent occurrence is that people are late in making loan payments which can add to the amount and create further financial problems. There are multiple risks awaiting people who are late in student loan repayments and they include:
- You might lose out on future student aid, grants, and scholarships.
- After 270 days of non-payment, your loan is considered to be in default.
- Your credit score is likely to drop. It would be difficult to convince lending institutions to loan you money in the future.
7 Creative Ways to Pay Off and Get Rid of Your Student Loan Debt
As student loans can add up quickly and seem to be there for a long time, here are ways that you can start paying off debt to get you the financial freedom you seek.
- Make multiple payments
Instead of making just the minimum required payments for each repayment period, pay back a larger amount. This will reduce the compounding effect of interest and the subsequent payments you would have to make.
You may set your bank accounts up in a way so that they make automatic multiple monthly loan repayments. This will reduce your loan period significantly.
- Take on more creative work
If you already have a job, try to look for overtime where possible. If not, get creative and try to earn more money. Ask your school’s career development center whether they have any on-campus vacancies available or any community connections.
As a student, you’re likely to find working on-campus easier both in terms of the time and effort required. Perhaps consider starting a digital business, or taking on some freelancing work. More money in the bank would simply mean a greater number of payments going towards the repayment of your student loan.
- Budgeting and saving
The most efficient way to pay off your student loan debt is to plan and budget for your monthly cash flows. To establish an effective budget, distinguish between needs and wants. Prioritize needs within the budget, while reducing or eliminating wants depending on their level of importance to you.
After setting up an effective budget with goals in mind, stick to it. At the end of each month identify the variances that occurred within that month and take appropriate measures to avoid them in the future.
- Income-driven repayment (IDRP)
Income-driven repayment plans are designed to make your student loan repayment more manageable. In IDRP, the monthly repayment of the loan will be based on a percentage of your discretionary income. In case if your income or family size changes, you can request that your monthly income-driven payment be recalculated to reduce the payment you make every month.
- Student loan refinancing
You can refinance your student loan by involving a lender who will repay your existing loan and replace it with a new loan, interest rate, and repayment schedule. To refinance your student loan, you would need to have a high credit score.
Refinancing a student loan may mean that you end up with a better loan repayment deal which is more manageable as well as lighter on your bank balance. It is not a way to directly pay off your bank loan, but it is a method to make your existing loan repayments easier.
When looking at options such as this, consider the amount of interest you would be paying and if this is something that works for you.
- Apply for loan forgiveness/cancellation
In certain situations, and for certain career choices, you are allowed to apply for loan forgiveness. Often a particular career in underserved communities will get you an opportunity to apply, check your local government website.
7. Loan discharge
When circumstances render you completely unable to pay off your loan, you may apply for loan discharge. The following is a list of such circumstances.
- In some cases, you can have your federal student loan discharged after declaring bankruptcy.
- If a parent who took out the loan on your behalf passes away, you may apply for a loan discharge.
- If the school in which you enrolled, closes, then you may apply for loan discharge.
Is Paying Off Student Loans Worth it?
Student loans not only set you up for a successful college or university education, but also instill good spending and saving habits, responsibility, and create opportunities that may not have been possible without the loan.
That being said, loans also build up good credit which will allow you to get more loans in your future. These may include a home mortgage, a business loan, or a car loan. By not paying your loan back you may not be granted loans and miss out on opportunities.
The answer to this question is a definite yes. Use the loan to propel you forward in life, then use those benefits to take you even further.
Do Your Best to Stay Out of Debt
There are many ways to go to college without borrowing money, but you need to be proactive and open to looking. There are multiple merit-based and need-based scholarships made available by different colleges.
A student should consider finding their way around a student loan if free opportunities are available. However, loans are a good investment and considered good debt, so don’t miss out on school for lack of funding.
When debt is required, do your best to be responsible and set goals. Stay proactive, pay down your debt slowly, and be consistent. Don’t let debt accumulate interest because you didn’t pay attention to it. When used effectively, student loans are an incredible tool to create future success.
By: Robert Puharich | January 5, 2022 |