6 Smart Ways to Not Be Part of the $1.4 Trillion Student Loan Epidemic
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You won’t be surprised to learn student loan debt is a bit of an epidemic in the U.S.
The average graduate last spring faced more than $37,000 in loans. Many can expect a nearly $300 monthly payment for 10 years.
A mountain of debt is probably not what you pictured when you imagined your life after college. You likely expected an exciting job, a couple of kids, a beautiful house and a devoted spouse, not to repay student loans for the foreseeable future.
Yet, here you are. Tied to a much-less-romantic kind of ball and chain.
If you’re ready to take control and lighten that burden, here are six things you should start doing today to pay off your student loans.
1. Figure Out What You Owe
The first step to paying off student loans is knowing what you owe.
Considering you often sign off on student loans as a teenager without a clear understanding of what they even are, we understand if you’re not 100% sure where to begin.
Credit Sesame will let you see how much money you owe and to whom (even if you’ve defaulted on loans). It’ll show your balance on both private and federal loans and offer tips to help reduce your debt and raise your credit score.
2. Lower Your Interest Rate
For some, this could be one of the best ways to pay off student loans.
Try getting a lower interest rate on your federal and private loans by refinancing with a company like Credible. There are others that offer similar services, but we like that the average Credible user saves about two interest points on their current federal loans.
Refinancing will generally mean replacing your laundry list of loans with one (or a few) loans that bring all of your student debt under one umbrella.
This could simplify your life with one monthly payment, instead of several. It may also lower your monthly payment, improve your interest rate and/or give you more time to pay.
It might seem like a small difference, but a lower interest rate can mean a lot of savings over time. It’s helping grad Ashley Williams save more than $18,000 in interest over the life of her loan!
Enter your info at Credible to find out what your new interest rate could be.
3. Start Making Extra Money
You’ll probably also want to do more than just keep up with loan payments.
If you want to get out from under the thumb of debt, you’ll need to start earning more money.
Unfortunately, we can’t recommend any reliable ways to get rich quickly. But we can help you get started saving — and growing — your money, even if you don’t have a lot to start with.
We’re kind of obsessed with Acorns around here (and not just because it gives you $10).
We love that anyone can use Acorns to start investing. You don’t have to have an MBA or even make it all the way through “The Big Short” to understand how to invest with this app.
You just link your bank account and Acorns does the rest by rounding up your purchases to the nearest dollar and investing the change in the stock market.
To get the $10 bonus:
- Download the free Acorns app.
- Link your bank account, and spend money the way you normally would. Your digital change will get automatically invested.
It probably won't save you enough to retire on, but it’s a terrific reward for using a free app, and an easy way to set aside money for the future, without even thinking about it.
4. Learn Your Repayment Options
If you can’t afford your monthly payment on your federal loans, don’t sweat.
But don’t ignore it, either.
A lot of options can help you cut that payment down and let you continue to repay your loan without straining your budget.
Income-driven repayment plans and Pay As You Earn (PAYE) limit your monthly payments to a percentage of your income and extend the period you have to pay beyond the standard 10 years.
You can also apply for a Direct Consolidation Loan through the federal government. This is similar to refinancing, but it’s only for federal loans.
Consolidating your federal loans could get you a lower interest rate and more manageable monthly payment.
5. Apply for Deferment (But Only if You Need To)
If you can’t afford your monthly payment due to unemployment, economic hardship, military service or other Department of Education–approved factors, you could qualify for deferment.
During months of deferment, you won’t owe a monthly payment for your federal loans.
It’s a helpful option if you temporarily can’t afford your monthly payment. But be careful not to use it if you don’t absolutely need to. Your subsidized loans won’t accrue interest during months of deferment — but any other loans will.
If you don’t qualify for deferment, your lender may grant a forbearance to allow you to stop making payments or reduce your monthly payments for up to 12 months.
You’ll continue to accrue interest, but you can avoid default.
6. Start Earning Cash Back Towards Your Payments
You know how you can earn cash rewards with credit cards?
Many people (including myself) might put this money toward unnecessary splurges or trips abroad.
However, there are other, perhaps smarter, cash-back options out there.
Take EvoShare, for example. EvoShare is a cash-back program that allows you to earn money back on your purchases from local businesses and online vendors. That money, which compounds over time, then goes toward your outstanding student debt.
By using a program like this, you’re saving time and also interest.
EvoShare takes 25% of your cash back, but it’s otherwise free to use. Plus, you’ll get to see the magic of compound interest at work!
Dana Sitar (@danasitar) is a senior writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).