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Student loan debt can cripple your budget and reduce your ability to achieve major life goals. The average graduate leaves school with over $35,000 in debt now. So, how do you pay off student loan debt fast so you can move forward with your life?
The first step is to understand how much debt you have and what types of loans you hold. It may sound crazy, but many people leave school with no idea of how much they owe. This is crucial information as you develop a plan to pay off student loan debt quickly.
It’s important to note which debts are private and federal, because this determines which repayment plans you can use. If you just graduated, also note when the repayment period on each loan starts; most federal loans have a six-month grace period.
The path you use to pay off student loan debt largely depends on how much income you have on-hand for elimination. If you have disposable income to burn, you can pay off student loans debt fast without stressing your budget. On the other hand, if money is tight, you may need a plan that focuses on lower monthly payments.
Income security matters, too; that’s how confident are you that your income will at least remain steady. For example, you may choose to consolidate all your loans together (federal and private) with a private consolidation loan. However, this would make you ineligible for federal relief programs if you run into trouble down the road.
There are different repayment plans for different types of student loan debt and various needs:
All the hardship based plans offered through the federal government have terms over 20 years. However, if you qualify for Public Service Loan Forgiveness, the government forgives your remaining balances after 120 payments (10 years).
This is where paying off student loans can get tricky. There is no requirement that all federal student loans must go into the same repayment plan. In fact, you can even do strategic things like having two standard repayment plans running at the same time. Since standard monthly payments depend on the total debt included, splitting your debt up can adjust how much you pay each month.
In general, you can’t enroll in a hardship plan and another hardship plan or a standard plan at the same time. However, you can pay off federal student loans with part of a private consolidation loan, then include the rest in a hardship-based plan. That assumes that you have an income level low enough to count under the federal definition of financial hardship.
Also, note that to use federal loan forgiveness, you must enroll the loans you want forgiven into a hardship-based plan. Forgiveness only applies to loans you include in that program. You also need to certify that you work in a qualified public service position during the 10 years of repayment.
Your ultimate goal is to achieve highest total monthly payment you can comfortably afford on your budget. This will pay off student loan debt as quickly as possible and minimize total interest charges. If you can’t figure this out on your own or you’re unsure, get professional help.
In general, private student loan consolidation is the fastest way to pay off student loan debt. At minimum, federal repayment plans take 10 years. But with a private consolidation loan, you can set a term that works for your budget and goals. So, if you want to pay off student loan debt in five years, you set a 60-payment term; as long as you can afford the payments, this will get you out of debt in half the time.
It’s worth noting that you can usually make larger payments or extra payments on student loans without early repayment penalties. This means you can direct extra cash, such as a tax refund, to your student debt. Extra payments and larger payments mean you pay off principal faster, so you can be out of debt that much sooner. Making the largest payments possible will pay off student loan debt as fast as possible.
Published by Debt.com, LLC