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How To Pay Off Your Student Loans Faster

The student loan crisis is nothing new. 

For years, both borrowers and dollars have skyrocketed and brought our country to over 1.64 trillion dollars in student loan debt across 45 million borrowers. The class of 2019 experienced an average debt of about $30,000 per person including private and federal loans. 

That is a lot of money and an intense burden to place on the shoulders of a 22-year-old hopeful, freshly groomed graduate. But the student loan crisis involves much more than the debt itself; paying it all back is a big financial, and time, burden. 

How long does it take the average student to pay back the debt from their degree? And is there a way to pay that debt off faster, providing more opportunities for financial growth? Let’s find out.

How long does it take to repay student loans?

According to the Cengage Student Opportunity Index, students expect their debt to be paid off in full within 6 years. That optimism also comes from the fact that 90% of these same students thought that they would land a job in their educational field within 6 months of graduating, earning a starting salary of about $60,000. 

The data doesn’t back up such optimism. 

In reality, only 60% of graduates will land a job in their field right after graduation, according to the same study, and can expect around a $50,000 starting salary. While positive, it isn’t always enough to get those loans paid off in less than a decade, especially for graduates who pursue different career paths. 

The Department of Education estimates that loans between $20,000 and $40,000 (with $30,000 being the average student debt in 2019), will take borrowers 20 years to pay off. That means on average it takes graduates two decades to pay back the money borrowed for school. 

Now that you know the statistics, what can you do with them? The first step is understanding the type of loan you have along with the repayment program that goes along with it. 

What type of loan(s) do you have?

Not all student loans are created equal. In reality, you will probably have a mix of loans and loan providers. The two you need to know about are

  1. Federal loans
  2. Private loans

Federal direct loans, whether subsidized or unsubsidized, are most often your best bet as they offer more competitive interest rates, are better protected, and have more flexible repayment options like income-based repayment plans and student loan forgiveness. 

Why can’t you just take out all federal loans and call it a day? The borrowing limit usually forces students and their families to obtain additional loans to cover the cost of college. Loans are capped at $5,500 for a student’s freshman year and only allow $31,000 in total.

For families that need to take out more than the federal limit, there are a few options to consider. Parents can apply for a Parent PLUS loan, but these loans come at a big cost with a 4.2% origination fee and a 7.08% interest on the loan. For parents with a strong credit score, consider looking into private loans as these may have less steep interest hurdles and can give a better deal. 

It can be more difficult for students to obtain private loans due to either a low or lackluster credit score which can increase interest rates significantly adding to the time they are in debt.

Paying that debt off faster

Before taking on student debt, it is important to make a plan for paying it off. Extra preparation can ensure a smoother and quicker repayment period. 

The first thing you can do is make a plan to borrow less. By keeping up a job both before and during school, you may be able to reduce the amount that you have to borrow. This can be a huge benefit as you start your career and build wealth. 

Before borrowing, take a close look at the scholarships and grants your school offers. There are so many scholarship opportunities out there both on a national and local level to help offset the cost of college. 

In the quest to borrow less money for college, take a hard look at the type of school you are looking to attend. Public colleges are on average much less expensive than private ones which can save you a significant amount over 4-6 years it takes to finish a traditional bachelor’s degree. 

It is also well to know that there are so many career paths that don’t require a bachelor’s degree. Trade schools and associate degree programs can prepare you for different jobs and career paths that are more cost-effective. It is all about understanding what you want and setting your own priorities for your life moving forward. 

Another method for paying off your loan faster is contributing more money to your loan each month. Let’s say your monthly payment is $600. If you can pay $1,000 per month instead, you are adding so much money to your loan repayment over time. Before you decide to stash away some extra cash be sure you work with your loan provider to have that extra amount go toward your principal balance, not your next payment or interest owed. This will actually help you decrease the amount of interest you pay over the life of the loan while also getting the amount down faster. 

Another method to pay your loans off faster is finding loan forgiveness programs. One of the most well known is the Public Service Loan Forgiveness Program that allows you to get your loan debt forgiven after working in public service and making qualified payments over 10 years. PSLF is a complex system so before embarking on that journey, ensure you know which loans qualify and how to meet all repayment requirements. 

Some employers are offering new employees student loan forgiveness packages as part of their benefits. Look into this and see what your employer may be willing to help. 

Our team can help

At Arnold & Mote, we are passionate about helping families create financial plans that will serve them at every point in their lives. College planning is an important part of many people’s lives and one that we are well versed in and excited about. 

The idea of student loans can be really overwhelming. But by creating a strong plan before college even begins, you will be able to devise a strategy that works and get those student loans paid off faster. Interested in learning more about college planning? Give us a call

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