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8 Smart Tips For Keeping Student Loan Debt to a Minimum

Did you know that approximately 65% of students seeking a bachelor’s degree from a public institution have student loan debt? According to recent figures released by the Education Data Initiative, the average debt amount for those students is $31,900. Those attending a private for-profit college leave with nearly $59,000 in student loan debt. Given these numbers, it’s no surprise why so many graduates have difficulty saving money and find themselves postponing major life events, such as buying a house or starting a family. If you’re just starting college or have recently left, consider these tips for keeping your student loan debt to a minimum.

Pre-Graduation Tips

One of the best ways to keep your student loan debt to a minimum is to apply for scholarships and grants. Unfortunately, even with free financial aid, most students will still need to take out loans to help cover their college expenses.  There are, however, three things you can do while you’re in school to help reduce your overall student loan debt.

Borrow Wisely!

Be sure to exhaust all federal financial aid before turning to private student loans. Federal student loans typically have lower interest rates and more flexibility when it comes to repayment. Additionally, never borrow more than you need. It can be tempting to take out the maximum allowed but that will only result in higher monthly payments after graduation. To estimate the maximum amount of student loan debt you should carry for your particular major, check out this handy calculator from Zippia.

Make Interest Payments While in School

If you have federal unsubsidized or private student loans, interest begins to accrue as soon as the funds are disbursed. To avoid a larger balance at graduation, pay off your interest while you’re still in school. If you don’t, it will be added to your loan balance when it enters repayment status. This is known as capitalization. When this happens, your loan balance increases and interest will accrue on the higher balance, so you’re basically paying interest on interest. It will likely increase your monthly payment, too!

Pay Down Your Balance Before You Graduate

Speaking of monthly payments…don’t wait until you graduate to start paying down your student loan balance. If you have any extra money available, put it towards paying off your student loan debt. Consider taking on a part-time job or gig work to help reduce as much debt as possible. The lower your balance, the smaller your payments will be once you leave college.

Post-Graduation Tips

Once you leave college, it’s time to buckle down and start paying off those student loans. Here are five ways you can reduce your student loan balance and hopefully get out of debt sooner.

Sign Up For Autopay

Most student loan lenders offer a .25 percent interest rate reduction if you agree to set up automatic payments. Although it won’t reduce your current balance, it does help reduce the amount of interest you’ll pay over the life of the loan, which can help you save hundreds of dollars.

Pay More Whenever Possible

An easy way to pay off your loans faster is to pay more than your minimum monthly payment or make additional payments whenever possible. Did you get an unexpected raise or bonus? Use that money to pay down your debt. Just be sure to let your loan servicer know to apply any extra payments to your principal balance.

Additionally, if you have more than one student loan, always send the extra money to the loan with the highest interest rate first. By paying more each month, you’ll not only pay off the balance sooner, but also reduce the interest that accrues.

Consider Refinancing

Depending on the type of loan you have, refinancing could help you shorten your repayment period or even reduce your rates, but be sure to do your research first. You could lose certain benefits and protections if you’re refinancing federal loans with a private lender. The payoff, however, could be hundreds or thousands in savings if the interest rate is significantly lower. It’s important to note that you’ll need to meet certain credit requirements and may even need a cosigner if you decide to move forward with this option.

See If You Qualify for Student Loan Forgiveness

The Biden administration has made it easier for borrowers to qualify for student loan forgiveness. If you work in public service through the government or a nonprofit organization, be sure to look into the Public Service Loan Forgiveness program. Certain full-time teachers may also be eligible for up to $17,500 in student loan forgiveness after five consecutive years of service.

You may also be eligible for up $20,000 in one-time student loan forgiveness if the U.S. Supreme Court allows Biden’s relief plan to move forward. Unfortunately, the program cannot accept new applications until a final ruling is made later this spring.  

Ask About Employer Repayment Assistance

The CARES Act allows your employer to contribute up to $5,250 per year toward your student loans. The payments are tax-free through 2025, meaning you won’t pay income tax and your employer won’t owe any payroll tax on these funds. If your employer doesn’t currently offer employer repayment assistance, consider asking them to add it for 2023.

The Bottom Line

Although student loans are often a necessary evil for most college students, there are things you can do before and after graduation that can help you keep your debt to a minimum. Be sure to explore all your options and make smart financial decisions.