Student loans are a source of worry and frustration for many borrowers. However, it can be a mistake to pay off certain types of student loans too quickly. Federal student loans are generally a “good type of debt.” We encourage you to read our recent blog on why this is the case. Private student loans are another story. Unlike federal higher education debt, private student loans often lack helpful income-driven repayment and forgiveness programs. Private student loans may have higher interest rates and it is easier to default.
You should pay off private student loans as soon as possible. There are multiple ways to accomplish this goal. Five common ways to quickly pay off private student loan debt include:
- Using federal income-driven programs to save money: If you also have federal student loans, then you may qualify for income-driven repayment programs that can lower your monthly payments. Money saved by these programs could be used to pay down the balances on your private student loans. You could make it a priority to pay off private student loans with the highest interest rates.
- Changing your living situation: You could also save money by living with roommates or by working out an arrangement with family members. This strategy is typically used by younger student loan borrowers. Money saved by living with roommates or family members could go towards paying down your private student loans.
- Refinancing your loans: If your credit score has improved over time, then you could see whether you qualify to refinance your student loans. You may be able to lower your interest rates, which means you will pay less over time. However, you should discuss this option with a professional before making a decision. Refinancing is an option that must be considered very carefully.
- Cutting back on unnecessary expenses: You could create a list of unnecessary expenses. For example, if you are eating out at restaurants or going out with friends too often, you could temporarily cut back on these expenses to save money. Depending on where you live, you could use public transportation instead of a vehicle. This could save money that would otherwise go to car and insurance payments.
- Choosing an employer with a student loan repayment program: If you are able, then you could pick an employer that helps its employees pay back student loans. More companies are beginning to offer this incentive to attract talented workers. Examples of companies with these programs include Nvidia, PricewaterhouseCoopers, Aetna and SoFi. Certain federal employers, such as the Department of Defense, also offer these programs.
This is not an exhaustive list of suggestions that could help you pay off your private student loans. Effective strategies for paying down student loans will vary from person to person. Some of the strategies we discussed may not be an option for certain borrowers. Continue following our blog for future updates on other potential strategies for tackling private student loan debt.