Small Things You Can Do to Get Student Loans Under Control

Paying off student loans is a tedious task and for many it may seem like an endless financial black hole. While Congress does not seem to be concerned about our $ 1.6 trillion (and ever-growing) collective debt , and any possible relief is still a long way off, there are small things you can do to reduce your lending burden.

It is not a panacea for your financial problems, but it will help you organize your loan payments.

Focus on one loan at a time

To cover your student loan debt, you need a plan. List all your debts, public and private, and the corresponding interest rates. Then decide if you want to deal with them with the snowball method , which means paying the lowest balances first, or the avalanche method , which pays the debt with the highest interest rate first. To maximize your savings, you should prioritize the loan with the highest interest rate, although some people find it more useful to take the smallest loan, then the second largest, and so on.

Set up automatic payments

Yes, this will ensure that all your payments are made on time so you won’t face interest or late fees, but in some cases it can also mean a 0.25-0.50 percent reduction in your interest rate , depending on your lender. …

Pay (slightly) more than the minimum

You need to pay at least the minimum amount due each month to avoid default, but if you can pay more, even $ 10 or $ 20 more, it can dramatically reduce the amount of time you spend paying off your loan. … If you can’t do this at first, pay the minimum until you feel comfortable, and then gradually increase your monthly payments on the loan you decided to pay off first.

Ask for additional ones to go towards your principal

If you pay more than the minimum and you have no other fees, you can require that a premium be applied to the principal, rather than interest. It helps in two ways: first, it lowers your overall balance, and second, it lowers your future interest payments.

The service staff is tricky and you need to check them constantly to make sure they are applying your payments the way you want them to. And you want to make sure that you are asking for it to go into the debt that you prioritize to really make a difference – otherwise the support staff will distribute it among your loans without affecting your debt.

Here is an example of what you want to send your creditor of the Bureau of Consumer Financial Protection :

I am writing to provide you with instructions on how to apply payments if I am sending an amount in excess of the minimum amount due. Please apply payments as follows:

  1. After applying the minimum amount due for each loan, any additional amount must be applied to the loan with the highest interest rate.
  2. If there are several loans with the same interest rate, apply the additional amount to the loan with the smallest outstanding principal balance.
  3. If any additional amount beyond the minimum payable ultimately results in the repayment of the individual loan, please apply the remainder of my payment to the next highest interest rate loan.

Perhaps I will find a way to refinance my loans at a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should follow the instructions above.

Save these instructions. Please apply these instructions to any future overpayments. Please confirm that these payments will be processed as directed, or explain why you are unable to follow these instructions.

Thank you for your cooperation.

And make sure you have a copy of the letter.

Make a surcharge

If at all possible, making an additional payment once or twice a year will help tremendously in the long run. And if possible, you should do this as soon as possible after your previous payment so that less accrued interest and more can go to your principal. When you pay an additional amount, make sure you are not making an advance next month (you need to double check right away if it applies to your loan).

If you cannot do this online, you may have to call your service staff, which is a problem, but worth the extra effort if it saves you money. Think about it: Did you call to complain about poor service or a small charge on a credit card or cable TV bill? It will save you more than that. Check the following statement to make sure everything was applied correctly.

Here is an example using this student loan lump sum calculator : Suppose you have a student loan outstanding of $ 39,400 (2017 average) with a six percent interest rate and monthly payments of $ 437. If you make an additional one-time payment of $ 1,000 (say, from a tax refund), you will reduce your total bill by $ 694. It’s not a ton, but helps a little.

The caveat here is that if you are on track for a loan forgiveness; then it might not make sense to pay more. Remember: you are still on the hook for forgiven loans taxes.

Find a repayment assistance program

Depending on your profession or the state you live in, you may be eligible for a repayment assistance program to help you with your student loans. Student Loan Hero has a tool that lists over 120 such programs and can help you find out if you qualify.

Make payments every two weeks

Payments every two weeks will split your monthly debt in half, but it’s also a painless way to fool yourself into making an additional full payment every year. “In my case, paying bi-weekly would shorten my maturity by about a year and a half and save me about $ 2,000 in interest,” writes Shannon Insler for Student Loan Hero .

Take a deduction of interest on your student loan

After some rewinding, the student loan interest deductions will persist for the foreseeable future. This means you can claim up to $ 2,500 deduction on student loan interest, which could save you a couple of hundred dollars in tax time.


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