Why it’s time to get smarter about student loan debt


Knowing how long it will take you to pay off your student loans is a crucial aspect in managing your finances and planning ahead for your future. The length of your student loan repayment depends on a few factors, including:

Your interest rate.
Your total balance.
Your income.
Your repayment plan.

If you’re unsure how to move forward, a student loan calculator can help you find the best payoff plan for you.

Understanding student loan debt

There are two types of loans you can borrow: those issued by the government (federal student loans) and those issued by private lenders (private student loans). While they differ in some ways, they’re both intended to help you fund your higher education with money that you have to repay with interest.

Higher education isn’t getting any more affordable, and if student loans aren’t properly managed, you could be stuck with debt for years down the road. This is because you’ll be charged interest on your loan balance every month, and if you don’t pay your balance in full, that interest will continue to accrue. The longer you take to pay off your balance, the larger your debt grows, which can impact things like renting an apartment, buying a home and getting approved for credit cards.

Understanding fully how your student loans work and what repayment options are available to you has the potential to both save you thousands of dollars and strengthen your credit score.

How to use a student loan calculator

Student loan calculators can help you figure out how long it will take you to pay off your student loans. All you have to do is enter the loan amount, the loan term (in years or months) and the interest rate per year.

By doing this, you can see how different terms and interest rates will impact your monthly payment and, by extension, your monthly budget. A student loan calculator is particularly handy if you’ve gotten a quote on interest rates but haven’t decided on a repayment term — a calculator allows you to determine the shortest repayment term that your budget will allow.

4 tips for paying off student loans

Here are some additional tips and tricks to help you pay off your student loans faster — without breaking the bank.

1. Pay more than the minimum amount

If it’s possible, pay more than the minimum amount. “If you choose to put more money towards your loans every month, you will end up paying less in interest over the life of your loan and get out of debt faster,” says David Green, chief product officer at Earnest.

By paying more than the minimum, you’ll pay down more of the principal — which can help you pay off your student loans much sooner.

2. Pay more than once per month

Making an extra payment in addition to your required payments can go a long way toward reducing the principal of your student loan. Your loan may have less interest accrued if you can make another payment within the same month. A more significant percentage of that money can be applied to the principal as a result.

3. Create a budget — and stick to it

Paying off a student loan is a long-term effort. A budget helps you identify which expenses are necessary and which aren’t. “By making a budget you can break down your spending into monthly bite-sized pieces and make adjustments to improve your spending habits,” says Green.

To avoid the urge to spend, try setting small goals for yourself or creating a dedicated student loan account with automatic deposits. That way, you remove the temptation to spend repayment funds.

4. Consider an income-driven repayment plan

Paying off your student loans based on yearly earnings can be a great way to chip away at your debt. Income-driven repayment plans, available to federal student loan borrowers, base your monthly payment on your current income.

There are four types of income-driven repayment plans that you can apply for:

Revised Pay As You Earn Repayment Plan (REPAYE Plan): Pay 10 percent of your discretionary income for 20 to 25 years, depending on your loan type.
Pay As You Earn Repayment Plan (PAYE Plan): Pay 10 percent of your discretionary income for 20 years.
Income-Based Repayment Plan (IBR Plan): Pay 10 percent of your discretionary income for 20 years if you’re a new borrower (on or after July 1, 2014) or 15 percent of your discretionary income for 25 years if you’re not a new borrower (on or after July 1, 2014).
Income-Contingent Repayment Plan (ICR Plan): Pay 20 percent of your discretionary income (or what you would pay on a standard 12-year repayment plan) for 25 years.
Other options for paying down student loans

There’s more than one way to pay off a student loan. You may be surprised at the various repayment options available to you:

If you’re a private loan borrower, you might want to consider refinancing your loan.
If you’re a member of the armed forces or a public servant, you might qualify for Public Service Loan Forgiveness.
If you’re still in school, consider making full or partial payments before you graduate to begin lowering your balance, even if it’s not required.

Federal borrowers can also make progress on their loans during the period of student loan deferment through Dec. 31, 2020. Federal student loan borrowers will not be responsible for making interest or principal payments through the extended deferment, but continuing your payment schedule during the zero-interest period will help you pay down your loans faster.

Learn more:
Guide to student loan interest rates
5 tips for paying off student loans fast
PAYE vs. REPAYE: Which is better to pay off student loans?

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