The statistics on student debt in the United States look grim. According to a study carried out by TransUnion, the amount of student loan balances increased by a whopping 75 percent between the year 2007 and 2012 while the average debt value per borrower increased by 30 percent during the same period.
What is even worse is there are still student choosing to major in liberal arts, psychology, history, humanities, and other useless degrees. The jobs in these fields are slim.
Big Student Debts
The average American college student today has about $23,829 in educational loans! This means that an individual in the initial years of his first job has to meet rising expenses – the fuel bills of his car and probably a new apartment (most likely not a home as of yet) – and also keep up with the monthly repayment plan of his student loan. This is a tough balancing act and increases his chances of falling into another loan trap to make ends meet. The only feasible way out is to pay off the student loan debt as early as possible.
Tips to be Money-Wise
The following tips will help all those grappling with their student loan monthly payments handle finances wisely and thus pay off their debts early:
- Cut down costly financial obligations. And the first to go out of this list should be the credit card debt that you may have accumulated over time. Henceforth, keep an eye on the debt you rake up on your credit card and a wise policy is to do away with multiple credit cards. This is also a salient time to reconsider your monthly expenses and determine if there are areas where you can downsize. Maybe you can cut down on your grocery or eating out bills or probably the cost of the utilities. Every penny you thus save can be steered towards your monthly loan payment and this will reduce your debt burden considerably over the years.
- Consider making bi-weekly loan payments. This works just like mortgage payments where if you pay bi-weekly rather than monthly, you can take away years off the mortgage. Firstly, the amount you pay in interest is reduced because there is less time gap between the payments and the interest amount does not build up to the amount had you paid after each month. Secondly, when you pay bi-weekly, you actually make 26 payments in a year that could be worth an extra month’s payment.
- Add a few dollars more to the repayment amount every month. It might be difficult for you to fork out an extra month’s payment every year but you will hardly feel the pinch if you add a little more to your loan repayment amount every month. Every dollar you shell out will add up to lessen the burden of loan and help you pay off your student debt early. So, eat out a little less, ditch the car and take a walk more often (your body will also thank you for this), and stifle the desire to splurge on a new dress once in a while. You will soon be rewarded with financial freedom and peace of mind!
The above-mentioned tips will come in good stead in every student’s life whatever be the amount of his loan. Some of these are actually good habits to ingrain in yourself so that you can stay away from unnecessary debts throughout the rest of your life and thus never compromise on your financial freedom.
Federal student loans cost less in interest rates than those provided by private lenders. But a loan is still a loan and it will weigh down heavily on you till you pay it off. If you have a federal student loan to repay, then you should know about the following rights:
- The Right to Loan Forgiveness: Individuals who work in sectors like law enforcement, military, public health service, or in a government agency are eligible to have the remainder of their federal direct loan waived if they have made 120 full and on-time loan payments under the Public Service Loan Forgiveness program.
- The Right to Defer Payment: This may not right away sound like a way to pay off student debt early. But consider this. If you are in still in college or a military academy and are unable to meet your monthly loan repayment requirements, you can defer payment till the time you are out of college. This will do away with the need for you to take another loan to pay your student debt. You can also defer payment if you are facing financial hardship.
- The Right to Pay Based on What You Earn: This is a wise policy to keep you current on your loan repayment obligations. This pay-as-you-earn plan starts once you leave college and land up a job. This plan lets you set your monthly payment amount to a certain fixed percentage of your discretionary income and based on the size of your family. This ensures that you are compelled to make the monthly payment (and thus lessen the chances of defaulting) and yet are not inconvenienced in doing so.
Sound Financial Planning
Those who have taken out federal student loans can exercise the above options to ease into a loan repayment plan that is imminently feasible without them needing to fall into another debt trap. Of course, spending wisely and inculcating the saving habits delineated in an earlier section will help in repaying the debt earlier than scheduled.
Becoming Debt Free
If you are a recent grad reading this, then take heart in the fact that you can still take charge of your financial affairs by following some of the above-mentioned tips to pay off your student loan. If you are a high school student or are in college, keep in mind the above-mentioned ways in which you can repay your debt early and enjoy a considerable degree of financial freedom in the near future.