10 ways to pay off your student loans in a year
The CARES Act of 2020 allowed borrowers to suspend payments on federal student loan debt without accruing new interest. After several extensions, that deferment period is finally set to expire on May 1, meaning millions of Americans will soon have to start sweating their student loan repayments again.
But instead of sweating, you can always strategize.
It’s entirely possible to pay less than you owe and settle your debt long before your loan term expires – in as little as a year, at best. What follows is a collection of tips and strategies for ambitious borrowers with the lofty goal of settling college debt in just 365 days.
Read more: The hidden costs of education at all levels
Check Out: 20 Jobs Where You Can Make $60,000 Through College
1. Calculate your payments
The surest way to pay off a loan early is to pay more than you’re required to pay each month – and when it comes to extra payments, a little can go a long way. The Department of Education’s Federal Student Aid (FSA) office gives the example of a $15,000 loan over 10 years with an interest rate of 4.9%.
By paying just $15 more each month, the borrower saves $395 and shaves a year off the loan. An extra $30 saves $708 and reduces the term by one month before two years. An extra $60 translates to savings of $1,174 and a debt-free life three years earlier than expected. Use a student loan repayment calculator to determine exactly how much extra you’ll need to pay each month to meet your one-year deadline.
2. Start early
If you have the time and energy, take on extra work. Whether your current job offers overtime or you can earn money on the weekends cutting the grass, consider taking a part-time job to supplement your monthly income. Who knows, maybe working 60-80 hours a week for a year will eliminate thousands of dollars from your debt? If so, the short-term grind will be worth it for the long-term gain. You don’t have to repay your loan while you’re still in school or during the following grace period, but if you can, you definitely should. The FSA suggests paying at least enough to cover the interest your loan accrues each month so there’s nothing to add to your principal when you enter the official repayment period.
3. Pursue a job that qualifies for loan forgiveness
If you’re one of the millions who quit a job in the Great Resignation or you’re planning to seek greener pastures in 2022, your next job could be your ticket out of student loan debt. About 35 million jobs are now eligible for the Civil Service Loan Forgiveness Program, thanks to an expansion of the program in October 2021, according to CNBC. About 22 million eligible positions are jobs in federal, state and local government and 13 million in nonprofit organizations.
4. Or find work in the private sector with student debt benefits
Many employers outside of the public and nonprofit sectors also offer student loan assistance. The Consolidated Credits Act of 2020 has made it easier for businesses to offer student loan assistance as an employee benefit — and many employers are doing just that to attract and retain top talent, according to Forbes. Chegg, Carvana, Ally Financial, Estée Lauder, Hulu, Google, Terminix, SoFi, and Lockheed Martin are among the big companies that offer some sort of student debt relief.
5. Serve before working
You’ve probably already learned that you can save more money by doing more things at home. Preparing your meals, watching movies on Netflix and even making your own cocktails can be much cheaper than if you just got out of school and want to delay entering the workforce, consider volunteering at a organization like the Peace Corps or AmeriCorps. You’ll be exposed to different cultures, a sense of purpose, lifelong connections to other volunteers, scholarships, monetary stipends, and a bright spot on your CV – but you might also be able to eliminate your student debt . Service in both organizations can result in loan forbearance, forgiveness, or cancellation, but the method and amount of forgiveness varies by loan type.
6. Sign up for Direct Debit
Many loans entice borrowers to sign up for autopay by offering a reduced interest rate to those who allow direct debits. For all but the smallest loans, you’ll have to pay more than the loan agreement requires each month to be debt-free a year from now, but a lower interest rate means less money paid overall. As a bonus, automatic payment prevents you from accidentally missing a payment.
7. Set up payroll distribution
Check with your job’s human resources department and see if your employer offers a payroll allowance. With payroll attribution, a certain amount of your regular paycheck goes directly into another account and not into your main checking or savings accounts. If you don’t see the money, you won’t be tempted to blow your paycheck. Soon you will have accumulated a nice amount of change that can be used to make a lump sum payment on your student loans.
8. Not saving for retirement
Contrary to standard financial advice, the strategy is to opt out of your company’s 401k plan or your own IRA and use what would have been your contributions to pay off your student debt. Only you can decide if being debt-free in a year is worth missing out on 365 days of retirement savings, but recent graduates have time on their side – and enjoying their 20 years without student debt just might to be worthwhile.
9. Find a roommate
If college hasn’t worn you out in shared living spaces, consider cutting your housing, utility, and subscription bills by taking on a roommate — at least temporarily — if your space offers the opportunity. Apps like SpareRoom, Roomi, RoomEasy and BunkUp make it easy and safe to find a roommate.
Going home is the least favorable option for many college graduates, but in most situations it is an opportunity to significantly reduce living expenses. If your parents would love to have you home to snuggle up for another year — and they’re willing to let you go with little to no overhead — this is a surefire way to cut costs and get on with the job. debt servicing.
You may be ready to get started. Or, you might say, “Ehh…maybe in a few years.” If it’s just not possible to pay off your debts in a year, consider your next option: figure out how to reduce the length of time you’re in debt.
The average recovery timeline is 10 to 20 years, so your goal should be to reduce that timeline to seven, five, or even two years. This can be accomplished by creating a detailed budget, using a debt snowball strategy, and implementing some of the 10 tips above.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: 10 Ways to Pay Off Your Student Loans in a Year