Small Things You Can Do to Get Your Student Loans Under Control

Paying off student loans is a slog, and for many can feel like a never-ending financial black hole. While Congress doesn’t seem bothered by our collective $1.6 trillion (and ever growing) debt, and any possible relief seems a long way off, there are small things you can do to lessen your loan load.

These won’t be a cure-all for your financial woes, but they’ll help you get your loan payments in order.

Focus on One Loan at a Time

In order to conquer your student loan debt, you need a plan. List out all of your debts, public and private, and their corresponding interest rates. Then decide if you want to tackle them via the snowball method, which means paying off the smallest balances first, or the avalanche method, which is paying off the debt with the highest interest rate first. To maximize your savings, you’d want to prioritize the loan with the highest interest rate, though some people find it more helpful to tackle the smallest loan, and then second smallest, and so on.

Set Up Auto Payments

Yes, this will ensure that all of your payments are on-time so you won’t get hit with late fees or penalties, but in some cases it could also mean s 0.25 to 0.50 percent reduction in your interest rate, depending on your lender.

Pay (Slightly) More Than the Minimum

You need to pay at least the minimum amount due each month so as not to fall into default, but if you can pay more than that—even $10 or $20 more—that could significantly reduce the amount of time you’re paying off your loan. If you can’t do that at first, pay the minimum until you’re comfortable, and then slowly increase your payments each month on the loan you’ve decided to pay off first.

Request That the Extra Go Toward Your Principal

When you pay more than the minimum and you have no other fees to pay, you can request that the extra be applied to the principal rather than the interest. This helps in two ways: One, it lowers your balance overall, and two, it lowers your future interest payments.

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Servicers are tricky, and you’ll need to continuously check in with them to make sure they’re applying your payments in the way that you want them to. And you want to make sure you request that it goes to the debt you’re prioritizing to really make a difference—otherwise, the servicer will spread it among your loans and it won’t make a discernible dent in what you owe.

Here’s an example of what you’d want to send your lender from the Consumer Financial Protection Bureau:

I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:

  1. After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate.
  2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
  3. If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.

It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should use the instructions outlined above.

Retain these instructions. Please apply these instructions to all future overpayments. Please confirm that these payments will be processed as specified or please provide an explanation as to why you are unable to follow these instructions.

Thank you for your cooperation.

And make sure you keep a copy of the letter.

Make an Extra Payment

If at all possible, making an extra payment once or twice a year will help tremendously in the long run. And if possible, you should do this as soon after your previous payment as possible, so that less interest has accrued and more can go toward your principal. When you’re paying the extra amount, make sure you’re not advancing next month’s payment (you’ll want to double check that it’s applied to your loan right away).

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If you can’t do this online, you may need to call your servicer, which is a hassle—but worth the extra effort if it saves you money. Think about it: Have you called to complain about poor service or a small fee on a credit card or cable bill? This will save you more than that. Check your next statement to make sure everything was applied correctly.

Here’s an example, using this student loan lump sum calculator: Let’s say you have $39,400 in student loan debt (the average in 2017), with a six percent interest rate and monthly payments of $437. If you made an extra one-time payment of $1,000 (say, from a tax refund), you’d cut your total bill by $694. It’s not a ton, but any little bit helps.

The caveat here being if you’re on track for loan forgiveness; then, there may not be a point in paying off more. Remember: You’re still on the hook for taxes for the amount of loans forgiven.

Find a Repayment Assistance Program

Depending on your occupation or the state you live in, you may qualify for a repayment assistance program that can help you with your student loans. Student Loan Hero has a tool that lists over 120 such programs, and can help you see if you qualify.

Make Biweekly Payments

Biweekly payments will split the amount you owe each month in two, but it’s also a way to painlessly trick yourself into making an extra full payment each year. “In my case, paying bi-weekly will knock about a year-and-a-half off my repayment time – and it will save me approximately $2,000 in interest,” writes Shannon Insler for Student Loan Hero.

Take the Student Loan Interest Deduction

After some back and forth, the student loan interest deduction will remain for the foreseeable future. That means you can claim a deduction up to $2,500 for your student loan interest, which could save you a couple hundred dollars come tax time.


 

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