Borrowing student loans helped you complete your college education, but now that you're repaying your student loans, you want to pay them off as fast as possible. Start with a student loan refinance through the government's direct loan program or a private lender. Here's what you need to know, along with more ideas for paying off your student loans fast.
Refinance Student Loans for Consolidation and Lower Rates
After graduation, you'll likely find that you owe several student loans with different interest rates and payment amounts. Keeping track of multiple payments can be difficult, and missed payments can damage your credit standing. Refinancing student loans into one loan can help you keep track of payments and possibly lower interest rates. The Federal Direct Consolidation Loan, offered by the Department of Education, uses a weighted average of your student loan interest rates to determine the fixed rate that will be charged for your Direct Consolidation Loan. You'll have the choice of several repayment options, including the Standard Repayment Plan of equal installments paid over 10 years, the Graduated Repayment Plan, which increases payments every two years, and payment plans based on your income. If you owe more than $30,000 in student loan debt, you can request an Extended Repayment Plan which spreads payments over 25 years.
Refinancing student loans to a Federal Direct Consolidation Loan can have risks. If you can't repay your Direct Consolidation Loan, you might find that it cannot be discharged through bankruptcy. The Department of Education advises that defaulting on federal obligations can also interfere with your ability to qualify for federal programs, such as FHA and VA home loan programs. The government might also seize assets, such as tax refunds, to repay a defaulted consolidation loan. That said, the government offers forbearance and payment deferment programs that assist borrowers experiencing financial problems.
Shop and compare student loan refinance quotes from private lenders before making your decision on refinancing student loans. Comparing rates and determining whether you're looking at fixed rates or variable rates are your first steps, but don't stop there. Review lender fees and costs for each loan you're considering. Compare the annual percentage rate, or APR, for each loan quote. The APR includes the interest rate and loan charges expressed as an annual percentage of the amount you're borrowing.
Student Loan Refinance Completed: Pay off Your Loan Faster
Your interest rates and the length of your repayment term affect how much your student loan refinance will cost. Paying off your loan faster can save money and free up the amount of your monthly payment for savings or paying off other bills. Here are three ways to pay off your student loans faster:
- Pay an additional amount with each payment. Paying extra on your student loans each month will reduce interest owed and help you pay off your student loan faster. If possible, budget for an extra amount each month so you're consistently paying down your student loan faster than your repayment schedule requires.
- Apply "found money" to your student loan debt. Tax refund? Unexpected bonus from your job? Inheritance? These are a few examples of "found money." Consider applying these financial bonuses toward your student loan debt.
- Generate extra income to pay off student loan debt. Set up an online auction account and pay off student loan debt with the proceeds of your sales. Have a garage sale every few months and make additional payments on your student loan debt. Pick up a part-time or temporary job and dedicate your paychecks to paying off your education debt.
The "blood, sweat and tears" you invest now to pay off student loans early will help you enjoy life later when you can qualify for a mortgage or afford to take that long-delayed and much deserved vacation.