According to the Indian census, only 4.5 % of the population in the country is educated up to the graduate level and a huge portion of the population 32.6 % is not educated up to the primary school level.
In recent times there is a huge hike in the number of students applying for student loans, which is due to more youths going to college than ever before.
Among college graduates, the most common thing is paying off a student loan. Recent statistics show that there are 44 million students only in the United States who have to depend on student loans and the collective loan amount to be repaid by students is $1.5 trillion.
As a matter of fact, the loan burdens highly impact the way fresh college graduates save, spend and live their lives. If the student loan is not planned and systematical paid off, these students may feel engulfed in the financial trap.
With the increasing interest rates on student loans, there is a relatively falling trend in homeownership by youngsters. Research from NerdWallet claims that youngsters who passed out from college in the year 2015 may have to delay retirement until age 75, due to the increasing burden of student debt.
Of all the limitations of student loans, still, it is one of the wisest investments a student can make. A degree from a reputed educational institution is the most reliable investment in future income and well-being.
Steps to Pay Off Your Student Loans Faster
So, let’s dive right in and discuss a few crucial steps that need to be followed to get rid of your student loan at a faster pace.
Refinance Your Student Loans
The best way to pay off your student loan is to refinance it with a different Bank that offers a lower interest rate. Refinancing is a tactical move for student loan borrowers for getting out of debt fast. While it can reduce your interest rate and streamline your monthly installments. Student loan refinances also allow you to combine your multiple student loans in one single loan, making your debt easier to track and repay.
Before you agree or accept any offers of refinance you should first do aggressive window shopping. In fact, you can go through multiple offers and these credit inquiries have no risk to your credit score, and you will not have any obligation to select one until it will benefit you.
With the help of refinancing, you can lower your monthly loan installment amount- or even raise the installment amount in case you want to pay off your debt more quickly.
If your student loan amount is $50,000 at a 4.99% interest rate. On a 10-year term, you will have to pay $530 per month. However, if you increase your repayment tenor to 20 years, your loan monthly installment will reduce to $330. In this case, you shall save $200 per month which is exactly what you need to pay rent or miscellaneous expenses.
Partial Loan Payment
In case, you have some extra funds lying around, you can very well make a partial payment on your student loans. Partial payment can be applied to your current monthly payment or on future monthly payments.
Partial payment on your student loan can eliminate monthly installments for a few months or sometimes it can reduce the amount of your monthly installment. Some banks also offer partial loan payments to reduce your tenor of student loans.
If your student loan amount is $10000 for a period of 5 years and you are paying $200 per month for the last year. Below are the options you can choose.
Option 1: You can make a $1000 partial payment against your loan and eliminate the upcoming 5 monthly installments. This means for the next 5 months you will not have any monthly installments for your student loan.
Option 2: You can make a $1000 partial payment against your loan and reduce your remaining monthly installments to $179. This means your monthly installment will be $179 for the upcoming 48 months.
Option 3: You can make a $1000 partial payment on your loan and reduce your student loan tenor. This means your last 5 months’ installments will be considered paid and your loan tenor will be revised to 55 months without any change in your monthly installment amount.
In some cases, student loan borrowers also have credit card debt or mortgage loan which has a higher interest rate. So, paying off credit card or mortgage debt that has a higher interest rate makes better financial sense.
Avail Tax Benefit on Student Loan.
A student loan can not only fund your college degree but also help you save tax. Before proceeding any further let me tell you that tax benefits on a student loan can be availed only if the loan is taken from a bank or a qualified institution for higher education.
Tax benefits can also be claimed if you have taken a student loan on behalf of your child or spouse or child for whom you are a legal guardian.
You can avail of Tax benefits on various courses. Higher education can be in any field after passing the senior secondary examination or any equivalent exam. It includes both vocational courses and regular courses.
The tax benefit is not given on the Principal amount you pay in monthly installments, only the interest amount in your monthly installment can be shown in tax exemption for the financial year.
You can avail of the tax benefit by filing a tax return directly from the Income-tax website or you may inform your employer’s HR department so that less TDS is deducted from your salary.
Pay More than the Minimum
At the loan sign-off stage, you must have selected the repayment plan and agreed to the number of installments. However, there is no limit to it, as most banks do not charge any fee or penalty if you pay more than the monthly installment amount.
The loan monthly payments always work in favor of banks that issue the loan because they encourage you to pay additional interest over time. Understand your budget wisely and work out an additional amount you can pay to the principal each month.
Paying the additional amount to the installment after the due date leaves minimal time for interest to accrue and more of your payments will go toward the principal.
Let’s say you have taken student loans of amount $18,000 with an interest rate of 5%. The loan tenor is 10 years with no deferment period, your monthly installment amount will be $191 and you will be paying a total interest of $4837.
So, if you consider paying an extra $50 along with the monthly installment without any rainchecks. You will clear the student loan dues, 2.5 years prior to the maturity date and pay a total interest of $3619.
This means you will be saving the total interest of $1218 and paying off your student loan 2.5 years prior.
Additionally, you should provide direct debit access to your student loan issuer for debiting the monthly installment amount from your bank account.
Consistency and disciplined payment of your dues is key to a good credit score which will fetch you better offers from the banks for future loans at discounted interest rates.
You should Avoid Private Student Loans:
A private student loan is the most dangerous debt whose effect may linger throughout your lifetime. There are many reasons like it needs a co-signer (which means if you die before repaying it in full, the loan will become due), It has a variable interest rate and in most the cases can’t be consolidated. So, if you have a private loan consider repayment as your first priority.
So, what are you waiting for? The interest meter is catching speed. Having financial freedom at a young age is very essential. Do not get locked up with debt as it highly influences your career decisions. So, it is always beneficial to repay your student loans at an early stage.
Many graduates ignore student loan debt until they complete college and get a job, but it’s advisable to start paying you due while you’re in college.
Get a part-time job while you’re in college and dedicate most or all of the earnings to your student loans. With this, you will get even closer to other financial goals like saving for a car or a house, retirement, or for your child’s education.
If you have any exclusive ideas to pay off student loans quickly? Do comment and share.