Student Loan Debt

Student Loan Debt

Everyone deserves a good education, not only because it is a fundamental human right, but it makes our society a better place. It is based on such rationale that governments come up with policies and programs aimed at ensuring that everyone can have access to quality education. One of such policies is encouraging students to take loans to fund their post-secondary education with the hopes that they would pay back when they employed. The debt incurred by taking these loans is referred to as student loan debt.

Student loan debt is the second-highest category of consumer debt behind mortgages in the United States and above credit card and auto loans. About 44.7 million Americans are owing a combined total of $1.56 trillion in federal loan student debt and $119 billion in private student loans. 

At an average amount of $32,731, the financial burden that comes with student loan debt exacts a crushing toll on the debtors’ finances and is proving to be a hefty cost for the economy. Analysts have projected that at a growth rate of 7% a year, total student loan debt would reach $2 trillion by 2021, and as much as $3 trillion by the end of the next decade.

How To Pay Off Student Loan Debts Faster

We don’t want the cost of educational aspirations to rob us of our much-deserved financial independence in the future. Having a student loan which spans as much as 30 years can be frustrating and limiting. As such, we need a framework or strategy to enable us to pay off student loans without denying ourselves future benefits. You can try or combine any of the tips below to allow you to pay off your student debt faster.

Choose your pay-off date

Another strategy is choosing a stipulated time at which you would pay-off your student loan. Having a date keeps you focused on your debt reduction goals and makes you see each income as a potential debt reducer. 

Assuming you have a $100,000 student debt which comes at an 8% interest rate. Your monthly payment is $1,213, which is spread over ten years. You wish to pay-off your debt in three years early. To do that, you need to increase your monthly payment by $360. This would save you $15,078.

Get into public service

Another strategy of paying off your student loan debt is getting into public service. The establishment of the Public Service Loan Forgiveness program in 2007 cancels all federal student loans for people in public service. If you meet the specified criteria, you can have your federal student loans cancelled after making monthly payments for 120 months. 

Consolidate or refinance student loans

You can refinance or consolidate your student loans to pay off your debts faster. Student loan refinancing is a process that allows you to consolidate your existing federal student loans into a single Direct Consolidation Loan. This new single student loan comes with a single monthly payment typically ranging between 5 to 20 years and lower interest rates, which may be fixed or variable. Loan service providers usually evaluate your credit profile by looking at your income, monthly cash flow and other factors. Try using a student loan refinancing calculator to find out how much you can save when you refinance student loans.

 

Increase payments on your student loan

Another smart strategy of reducing your debt and paying off faster is increasing your monthly payment on your student loans. The quicker you reduce your principal, the less you pay in interests, which implies less in total. 

Assuming you owe $200,000 of student loans at an 8% interest rate and your monthly remittance is $2,246. Then you increase your monthly payment by $200 per month, which brings your new monthly remittance is $ 2,446. The extra $200 payment will save you $11,108 over the life of your student loans and help you pay off your student loans early by a year. One advantage student loans have is that there is no prepayment penalty, which means you can pay off your student debt early without any penalty. 

You could also make a lump sum payment. Perhaps you got extra cash through a bonus, tax refund or gift. You can use such money to pay your student loan debt. Just make sure you inform your student loan servicer to apply such payment to your principal. 

Get A Side Gig

Your student loan debt involves extra money. As such, you need to double-up on your hustle to bring your student debt reduction plans to fruition. Getting a side gig is the surest way of earning extra income which can be used to offset your student loan debts. The possibilities are endless, especially in a growing gig economy such as our where you can earn money online. You can also take up part-time jobs to raise the much-needed extra cash. 

Prioritize interest rates

Prioritizing payments by interest rates, i.e. pay the high-interest balances first, is another smart way of reducing your student loan debt. This way, you reduce the overall amount that you would pay because you tackle the loans that accrue the most interest first. Rank your student debt by interest rate then start by paying the one with the highest interest rate, then move over to the next in the ranking. When making extra payments, you can use this process until your debts are paid off completely.

Pay every fortnight

If you can also choose to pay your student loans every fortnight, i.e. twice in a month. This is done by simply dividing your payment in half and pay each half once every two weeks. Splitting your payment this way helps you reduce your interest rates since student loan interest accrues daily.

Student Loan Debts By Age Group

Based on the data compiled by the United States Department of Education, the largest concentration of student loan debtors as at Q2 2019, are found within the age group 25 to 34 years-old with an outstanding debt of $454.6bn. This is followed by the 35-49 age group with an accumulated debt of $406.8bn. The least indebted age category is those above 62 years of age with a total deficit of $42.8bn. 

 

Age groupOutstanding Direct Loan Amount (In Billions)
< Age 24$123
25 – 34$454.6
35 – 49$406.8
50 – 61$171.3
> 62$42.8

Other interesting facts about student debt as compiled by the Brookings Institute includes

  • Only 8% of debtors owe more than $100,000
  • 23% of debtors graduate with less than $20,000
  • About 48% of all outstanding student loan debt is from graduate school.
  • Graduate students have lower student loan default rates than undergraduate students because they are associated with higher income
  • 30% of college students graduate with no student loan debt
  • Student loan borrowers who owe less than $5,000 default the most.
  • Student loan borrowers who owe less than $5,000 default the most.