Taking out student loans while attending school is the easy part; repaying those student loans is the hard part. College graduates learn this lesson rather quickly upon graduation when they begin repaying their student debt incurred while attending college. Some grads – very smart grads I should add – are turning to a very simple student loan repayment strategy that is saving them a ton of money in the long run – We’re talking thousands of dollars on interest rate charges.
This strategy is simple: pay off your student loans early. Sounds easy enough, but how do you do it? Well, I have to first mention that this strategy may not work in every situation, but for some it’s very doable. Upon graduation from college, you will begin repaying your student loans six months later and depending upon how much student debt you’ve accumulated over the past 2,4, 6 or more years, the interest rate charges and large monthly payments can really eat away at your finances fast. So attack your student loan debt by paying it off early.
Here’s an example:
The average college student who attends school for four years will accumulate about $25,000 in student loans depending upon the cost to attend the college or university. When a student such as this graduates and begins repayment on the $25,000 in student loans, their payments will likely be around $300 per month if the loan terms are set at 10 years (as most of them are). This is assuming an interest rate of 6.8% (Federal Stafford Loan rate), but private student loans may be as high as 10%. Federal Plus loans have fixed rates of 8.5%, and Perkins Loans have 5% fixed interest rates. So 6.8% is a good overall estimate of what you’d be looking at. For grads who can afford to pay more than the $300 per month, they would save a significant amount of the approximately $9,500 in interest charges paid over the 10 year repayment period. Paying off the student loans in 5 years, for instance, would drop the total interest rate charges down to about $4,500 – a $5,000 reduction!
Not every student can afford to make double or triple monthly payments though, so one option would be to live with Mom and Dad for a few years (if they allow it!) while you attack your student loan debt and get it paid off as quickly as possible. Living rent free is a great way to be able to put more money toward your student loan debt since rent or a mortgage is probably the biggest expense you will ever have. Another option would be to get a roommate or two or three to live with you for a few years to help lower your monthly rent obligations and free up some money to put toward student debt each month.
This student loan repayment strategy will only work for those people who are motivated to pay off their student loan debt asap. And if you’re one of those people, I’m happy to say that you’re well on your way to succeeding in life – at least financially. Those who can reduce or eliminate their debt quickly and efficiently are the ones who will not be living paycheck to paycheck their whole lives, because that’s what credit and debt can do to you – and in case you don’t know, living paycheck to paycheck is not a great way to live!