- 40 million Americans face education-related debt – so you’re not alone.
- Consider refinancing your student loans, changing up your payment cycle, or automating your payments.
- If you’re eligible, take a serious look at loan forgiveness.
You’re not alone if you have student loans — 40 million Americans have some form of debt related to education. And while it’s smart to invest in your own education — or even the education of your children — living with loans can feel like a drag on other financial goals, like saving for retirement.
Luckily, there are ways to make them more manageable. If you’re feeling overwhelmed, try these six tips to make living with student loans easier.
1. Refinance your loans to get a better rate.
When you refinance your loans, you typically work with a new loan company to pay off your original loan (or loans) and get a new single loan at a lower rate, which can save you thousands of dollars in interest.
Student loan holders who have been out of school for a few years — or have a new job offer letter while still in graduate school — have good reason to look into refinancing as their increased income and healthy credit can factor into lower rates. You have the potential to save thousands of dollars in interest when you refinance. To get started, take a look at this checklist of what you’ll need.
2. Switch to bi-weekly payments.
This is a savings tip often touted for paying down mortgages, but it works just as well with student loans.
Here’s how it works: Instead of making one monthly lump sum, split it into payments made every other week. For example, if your student loan payment is $1,200 per month, switch to making a $600 payment every other week. By splitting it up, you can shave money off what you owe in interest since the bi-weekly payments leave less time for it to accrue.
Bi-weekly payments will also shorten the life of your loan. If you time your bi-weekly payments to your paycheck, there will be two months out of the year with three pay cycles and therefore, three loan payments – that means a total of 13 payments in 12 months. Check out this calculator to see how much you could save.
3. If you are happy with your rates, consider consolidating loans to simplify your payments.
Loan holders with interest rates of around 5% or higher might consider refinancing. But if the APR for your federal loans is already low, consolidating them can at least make your life simpler. You won’t save any money in interest without refinancing, but consolidating the loans can be a smart financial step so you only have one payment to track. With a free app like Personal Capital, you can track your student loans along with all of your other financial accounts, from debit cards to your 401k.
The APR you will pay on your new loan is based on a weighted average of the loans that are being consolidated. For example, if you have a $10,000 loan with 6% interest and a $5,000 loan with 5% interest, both for fixed, 10-year-terms, your new consolidated interest rate would be 5.67%. The rate is calculated like this: $10,000 is ⅔ of your total loan balance and $5,000 is ⅓. You then multiply each interest rate by that fraction and add the results (⅔ * 6% + ⅓ * 5% = 5.67%).
4. Consider your options for loan forgiveness — but make a plan if you’re not eligible.
There are several options for loan forgiveness, cancellation or discharge, but only to loan holders who meet a specific set of criteria. Eligibility includes unforeseen circumstances such as the closure of your school, bankruptcy filing or permanent disability. But you can also apply for loan forgiveness programs based on your job or your employer.
For example, teachers who work full-time in a low-income elementary or secondary school for five consecutive years may be eligible to cut up to $17,500 from their loan through the Teacher Forgiveness Program. Certain public sector jobs also qualify for forgiveness through the Public Service Loan Forgiveness Program after you’ve made 120 payments through a qualifying repayment plan while working full-time for a qualified employer. Government entities and non-profits count as qualifying employers.
Keep in mind you have to apply for these programs and continue to make on-time payments until your application is accepted. However, these loan forgiveness programs can be narrow in scope — and if you’re not able to participate in one, then look into refinancing in order to lower your rates.
5. Ask your employer about student loan assistance benefits.
A growing number of companies are including student loan assistance as an employee benefit to recruit and retain talented and educated professionals. For example, PricewaterhouseCoopers launched its Student Loan Paydown program in which the company will contribute up to $1,200 per year towards paying down its employees’ debt. Other companies are working with refinancing companies to help offer lower rates.
Ask your employer if they have any benefits you can tap. If they don’t offer a benefit, you can always suggest they add it — you’ll be helping yourself, as well as all of your co-workers who are in the same boat.
6. Automate your loan payments.
Many loan companies will offer an interest rate discount if you sign up for automated payments. Not only do automated payments ensure that your loans get paid on time, avoiding costly late penalties, but every bit of savings helps in the long run.
The best thing you can do for your student loans is to be pro-active — and take action. The sooner you get your debt into a more manageable situation, the sooner you can get both mental and financial relief that you’re doing the right thing. Good luck!