Money

How To Pay Off Student Loans & Become Debt Free

(Last Updated On: October 27, 2020)

If you are reading this, chances are the title resonated with you. Perhaps you want to learn methods to pay off your student loans and become debt free. If you currently have private student loans and/or federal student loans weighing you down each month you are not alone.

In America about 45 million people carry student loan debt that totals nearly 1.6 trillion dollars, according to Forbes magazine. It really is a staggering statistic when you think about it.

In this post I will show you five ways to strategically pay off student loans. The truth is when you are debt free, you are FREE.

#1 Work for a Qualifying PSLF Employer

For those of you that may not know, the abbreviation PSLF stands for Public Student Loan Forgiveness. I know this is a more long term solution, but hear me out on this one.

If you have federal loans issued by the department of education and serviced by Federal Loan Servicing, you may qualify to have your loans forgiven after 10 years of working for a qualified employer.

Here are the basics you need to follow:

You must make 10 years worth of qualifying payments towards your loans to have them dismissed. You need to work for a qualifying employer such as a government institution, a non-profit agency or education system.

I have been in this program for nearly 8 years now. I am very hopeful that it will ultimately result loan forgiveness after my 10 years of payments.

Be diligent in staying informed on the recertification process each year.

As I mentioned I started this program about eight years ago, and technically my loans should get forgiven in September 2022. However, even with me reapplying each year and getting my qualifying payments re-tallied, there are errors, and it is hard to get them corrected.

For instance, even though I know my loans should get forgiven in September 2022, Federal Loan calculates that they should get forgiven in October of 2023. Over an entire year past what it should be.

One trick that Federal Loan does, is that when getting re-certified each year they will automatically put in you an administrative forbearance status, without your consent. In doing this, you essentially skip payments, which puts you farther down the road of loan forgiveness.

What can you do if this happens to you?

The first step is calling Federal Loan and asking them to do an additional review of your loans. That is the step I am on right now. If that doesn’t work you can try to resolve your issue by contacting the Federal Student Aid Ombudsman Group.

What is the benefit of enrolling in PSLF?

Ultimately being enrolled in the public student loan forgiveness program allows you to make a smaller payment based on your income. Generally this is about 10% of your payment. This allows you to make smaller payments, and allow the remaining balance after your 10 years to be dismissed.

I think if you are able to find a qualifying employer, enrolling in this program is beneficial. This could save you a lot of money over the course of your loan.

It is a longer term solution in compared to an aggressive pay off, but its one that will hopefully allow you to keep more money in your pocket month to month.

#2 Pay Off Private Loans Using the Snowball Method

Now on to private student loans. Unfortunately for lots of borrowers out there repaying heavy amounts of private loans is anything short of a burden.

Student loan debt is one area that the law does not allow you to declare bankruptcy. This is unfortunate for those that find themselves in such an overwhelming hole of loans that we sometimes wished we could just declare bankruptcy, take the seven year hit of bad credit and move on with our lives.

The first idea is to start tackling the smallest loan first.

Chances are you have multiple private student loan debts of all variety of balances. Take the smallest loan you have an make extra payments on that one specifically. Once you have payed off your smallest loan, move on to the next smallest, and so on.

When making an extra payment, be sure that money is actually being allocated to the exact loan you want it to be targeting. This may require calling your loan servicer and making the payment by phone if it is not an option online.

I like this method because it gives you the satisfaction of getting a loan payed off. Yay! Crossing off a private loan debt is a fantastic feeling.

I am hoping to pay off one of my smallest private loans by the end of 2020. Fingers crossed! Once that loan has been payed off, I have plans of using that extra cash flow to put towards my next smallest loan.

I know this is not an instant solution. But it is one that you can implement and work towards.

#3 Pay Off Student Loans Faster by Getting a Second job

Taking on a second job to gain extra income is a very actionable solution. Here are a list of side hustles that you can self start today as well as my picks for work from home jobs that you can do apart from your full time job.

Whatever income you generate from a second job should be set aside and put towards loans.

Although I realize at the time I am writing this article, we are in an economic recession. Many people have lost even their full-time jobs, so I understand that right now it is very hard to secure a job, nonetheless a second job.

But when the economy picks up again, keep this option in mind if you are able to. I know for me it is something I am considering doing.

#4 Consolidate Loans & Get A Lower Interest Rate

Believe it or not, now is actually a really good time to get a lower interest rate on your student loans. When the economy dips, as very unfortunate as it is, at least there are some options out there that can give you some relief, such as lower interest rates.

One of the most reputable companies to consolidate student loans with is a company called SoFi.

I would have also included First Republic Bank on this list but unfortunately as of May 2020 they are no longer taking on new student loan consolidation and refinance applicants. This is too bad, because that company had a great reputation. Perhaps in the future this will be an option again.

Shortly After I Left College I Refinanced Some of My Loans

Just two years after graduating college, the 2008/2009 recession had started. I had a really hard time finding a job. As I was just starting to pay off student loans each month it was a struggle.

At the time I decided to refinance some of my Sallie Mae (now Navinet) private student loans to a company called Lendkey. It honestly saved me hundreds of dollars. It was the only way I could manage to pay them each month.

Things to look for when shopping for a new loan consolidation company.

While you are looking at various lenders to potentially consolidate your student loans to pay attention to the interest rate.

I would highly recommend picking a flat rate of interest as opposed to a variable rate. With variable rates its unpredictable how much your loan payment amount could swing to.

Talk to friends, family members, co-workers, and read reviews about various companies before taking the plunge.

#5 Take Advantage of Direct Payment Withdrawals For a Discount

Some student loan companies offer incentives to borrows who sign up for direct debit payments. For example Fedloan Servicing offers its borrows a 25% discount when payments are made by direct debit.

Federal loan states: Direct Debit is a convenient way to make your student loan payments—on time, every month. Direct Debit is a free service. You will also qualify for a 0.25% interest rate reduction upon approval of your application. The electronic deduction from your checking or savings account will occur on the same date each month.

This is really a huge discount to consider. To pay off student loans as fast as possible so that you can ultimately be freed of this burden you should take every opportunity you can, and this is one of those opportunities.

In conclusion remember these five tips:

  1. Public Student Loan Forgiveness – If you qualify, you should sign up.
  2. Pay off student loans using the snowball method
  3. Get a second job
  4. Consolidate loans to get a lower interest rate
  5. Take advantage of direct debit withdrawals

Even if you can take action on only one of those options you are taking a step in the right direction.

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