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5 tips to repay your student loan fast
5 min

5 tips to repay your student loan fast

Finance
Jun 6, 2022
/
5 min

man and woman talking with one another while going through papers
Watch out for fast repayment of student debt.

A student loan is a common buzzword that every student faces once in their life (we get it, some don't). These funds help you to study in the country or abroad, depending on your goals. Used for the same purpose, student debt comes with separate loan structures and added features. And the most common of all is their complexity. 

Many student loans are structured in a way to accommodate you but the truth is: that they tend to leave out the terms you actually understand. Large financial jargon and a lengthy contract are all that require a reader to simply skip and sign. 

With tuition fees crossing over £9,000, along with hefty interest charges, your Student Loan is bigger than ever. That’s why such financial matters require a simple check-up before signing up. And if availed one, you should know your options to repay that debt. 

Here is a simple guide to finding everything you should know about your student loan repayment and where to look for while searching for ways to do it. 

1. Contact your lender 

Shot of a young woman using a mobile phone, laptop and writing notes while working from home

Many students are scared of a default loans while searching for employment. Students still looking for jobs can contact their lenders to rearrange their instalment amounts. This can be done to accommodate their personal expenses like accommodation rent, groceries, etc. 

Booking accommodation first time? Read the Common rental frauds and ways to avoid them.

Adjustable student debt allows you to pay smaller instalments today and larger instalments afterwards. While this offsets the burden of heavy instalments each month, the total principal amount is shaved off at a lower rate.

Tip: Shorter principal amounts being paid could leave you ending with long-duration interest charges in the long run. One major way to tackle it is to start job-hunting early and then slowly build your skills to earn early promotions or higher pay grades.

2. Check your eligibility for Income-Based Repayment

Income-based repayment is an effective way to reduce your obligations based on your discretionary income. The amount you earn after taxes and personal necessities (Food, housing, and clothing) falls under discretionary income.

Under the latest norms, income-based repayment is eligible for borrowers having high debt relative to their income. These can be:

- Borrowers with Direct Subsidized and Unsubsidized loans

- Subsidized and Unsubsidized Federal Stafford loans

- Student PLUS loans, and consolidation loans—but not PLUS loans made for parents.

The IBR plan is currently available to 1.6 million eligible participants and enables you to pay in either 10% or 15% of discretionary income, depending on your borrowing date. The instalment is capped under a 10-year Standard Repayment Plan and also supports eligibility for Public Service Loan Forgiveness after 20-25 years

Don't miss on this simple student guide on Education Loan Products in India For Higher Studies in America.

3. Consider Consolidating

adult girl calculating her monthly personal budget on her phone and laptop

Loan consolidation is the best-known solution to pay your debt at a constant interest rate. If you have multiple student loans by chance, loan consolidation allows you to club all of these debts and pay back sums based on the average of the interest rates on the loans being consolidated.

You can also enrol in a graduated-payment program while in consolidation (and in some other circumstances) that allows you to pay increasing amounts over time. The best way to determine whether you should opt for loan consolidation is via the Student Loan Borrower Assistance Project of the National Consumer Law Center. 

It has an extensive guide to loan consolidation and outlines these and other trade-offs.

4. Invest in a savings scheme

It's easier to plan your financial stability if you have some liquid funds available. You can either bring your indebtedness down or invest it in a savings account or other savings instruments by leveraging these funds. But, how do you choose the right one between the two?

A simple calculation is assessing the interest paid vs interest earned. If your funds earn more interest than being paid to your student loan, go for a savings scheme. This will help you moderately pay off the debt over time without burdening yourself. 

Meanwhile, if your investment is earning less than the interest paid to your student debt, it is wise to bring your debt burden down. This will also bring your overall repayment period to lesser months/years and leave you debt-free much sooner than expected. 

5. Develop a personal budget

Photo of a young woman sitting on the floor and working on laptop

Developing a personal debt budget is what prevents you from spending too much at instances when you feel like it. Personal student budgets enable you to check your expenses while maintaining regular instalments in a systematic plan.

With more, you also have a window of opportunity to navigate between your essential and non-essential burdens and streamline your monthly/annual budget. By such methods, your student debt will be paid without compromising your lifestyle or cravings.

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