Student Loan Repayment Tips: A Grad's Guide to Financial Freedom

Are you finished with your studies and ready to join the workforce?

Such a moment is indeed worth celebrating. Yet, for many freshly graduated students, the time is marred with financial stress due to pending student loan payments.

Typically, student borrowers take around 20+ years to pay off their loan amount entirely. But that means that you have to spend a long time paying off student loan dues until you become completely debt-free. This would be very stressful to manage, especially with potentially more debt piling on from other sources over the years, like credit card debt, home loans, etc.

There are options available for quicker student loan repayment that you can try. They are suitable for you if you want to tackle this debt right after graduating when your financial situation is still limited. Let's discuss them here.

Why should you prioritize quick student loan repayment after graduation?

There are multiple benefits to tackling this debt repayment as soon as you graduate and get a new job:

• Low debt-to-debt ratio: You will reduce your debt-to-income ratio, which will help you later qualify for new credit like mortgages.
• Improved tax planning: The tax deduction with student loans has limitations and only indirectly affects your tax bill as it lowers your AGI (adjusted gross income).
• Lessen your money-related stress: If you pay off your student loans early, you can focus on other financial goals, like retirement planning, emergency fund growth, etc.
• Decreased interest payments: The longer you take to pay off this loan, the more your total repayment balance will grow due to negative amortization. This cycle happens because interest on student loans grows daily. If you pay off your student loan quickly, you will save money on interest.

Best Tips for Repaying Student Loans Early

There are some methods available to pay off student loans fast. As a new graduate just starting out in the professional sphere, your income will likely be meager. So, try out these options.

Opt for loan forgiveness programs

There are certain loan forgiveness programs available, mainly for people with federal student loans. While these programs have strict guidelines for qualification, you can reduce your owed amount significantly if you use one such program.

“These programs can significantly help ease the burden of the loans,” says Joe Chappius, financial planner at Tax Climate. “I highly suggest graduates check out options tied to their potential profession, like Public Service Loan Forgiveness or Income-Driven Repayment plans. These programs have the potential to reduce their monthly payments and forgive remaining balances after a certain period. It's a smart move to do this and see if you qualify—it could make a real difference.”

So, check if you qualify for any and apply for one such program. Some options include:

• Income-Driven Repayment Forgiveness- IDR plans measure the monthly payment for individuals based on factors like discretionary income and family size. You have to make the payments only for the specified time, like 20 years. After that, the rest of the balance gets forgiven.
• Teacher Loan Forgiveness- This plan is available for teachers, specifically those working in low-income educational centers. Eligible teachers can expect loan forgiveness based on their years of service and subject, amounting to up to $17,500.
• Public Service Loan Forgiveness- Individuals working in non-profit organizations or public service can apply for the PSLF program. Here, the loan balance can be canceled for eligible borrowers if they made 120 repayments on time during their years of employment in the eligible field.
• Borrower Defense to Repayment- Under this program, students can apply for loan forgiveness if their school is found guilty of fraudulent activities or state law violations. To qualify, one has first to show proof of misconduct or fraud from the school.

Pay an extra amount toward the student loan principal

Student loan servicers can sometimes advance the due date of individuals with extra payment on next month's dues.

However, this does not mean that you can quickly pay off your student loan if you advance your due date. The extra amount you pay will go towards paying off late fees that you incurred or your accrued interest amount first. So, you should specify to your student loan servicer that they apply the overpayments directly to your loan principal. Mention that the upcoming due date will stay as planned originally.

Then, you can make this additional payment in a lump sum amount on the main due date or partially within the same month. This move will significantly help you in saving your money on student loan repayment.

Check out repayment programs from employers

Some employers offer student loan repayment as a benefit to their employees. After graduating, you can research your employment options wisely to see if you qualify for such a program.

Check out which companies offer assistance programs with student loans or tuition assistance in your chosen career field. Apply to one that meets your requirements. Even if you stay in one such organization for some years, you can save a lot of money on student loan payments with these programs.

Reframe your repayment plan

You can adjust your current financial plan with debt repayment in a more aggressive manner. Instead of choosing a financial plan where you slowly repay your dues, you can target debt payoff as your main priority. Dedicate a significant amount from your earnings to repay the student loan early on. You can use a strategy like debt snowball to tackle your debts if you have more than one. Here, you will pay off your loans starting with the one with the smallest balance, and so on.

Try out the auto-pay service

Many federal student loan providers offer discounts on interest rates for student loan payments if the individual opts for the autopay service. In this method, the money will automatically go out of your bank account on monthly due dates, at a discounted price than what you would pay manually.

Even some private lenders offering private student loans employ the autopay deduction. If you enroll in this service, you might pay off your student loan faster since your total principal will reduce with the discounted interest.

Get a side hustle

Directly after graduation, most students get an entry-level job. So, it is likely that it becomes difficult to pay off most of the student loans with this primary income, especially with other necessary expenses. You can take up a side gig to increase your cash flow.

You can arrange the bulk of your primary income toward paying student loan payments while using the side income for other discretionary spending. “You could drive for a rideshare service or deliver food, do freelance work online, walk dogs, or find small jobs on sites like Craigslist or Thumbtack,” says Thomas Franklin, CEO and co-founder of Bitinvestor. “Sure, a side hustle means spending more of your time working, but it can really help you bring in the additional money you need to get rid of that student loan debt faster.”

Live like a student

When you have a steady income stream, it is likely your expenses will also increase. That happens to students too right after graduation, when they first taste the freedom of adult life. Some spend their money on junk food and nightlife after work, while others adjust their financial plans for big purchases like a car.

Instead of falling into this trap of "lifestyle inflation," you can focus on repaying your student loan first. Avoid falling into the habit of overspending; instead, continue living like you were while studying for a college degree. Avoid splurging on big expenses and follow a strict budget. With time, you can properly repay your loan and then turn to other financial goals like retirement planning.

Final words

Keeping your student loan and slowly making payments will add to your financial burden over time. Instead, try out strategies like applying for a loan forgiveness program or adopting a side hustle to tackle these payments.

If you are struggling alone, you can contact financial advisors for guidance on managing loan payments while saving money, even with low income. They will assist you in preparing a comprehensive financial plan based on your financial situation and suggest other solutions.

Alternatively, you can opt for debt relief help, like debt management, to revise your debt repayment structure in a simpler way. With proper planning, you can improve your financial well-being over time!