By Lynnette Khalfani-Cox, The Money Coach
Nearly two-thirds of graduates of four-year colleges and universities have college loans to repay. The national average of student loan debt for these graduates is more than $20,000, according to a survey by The Project on Student Debt.
There are several different strategies and approaches student loan borrowers can take to get those loans paid off fast. During the next 7 days I will present “Seven Smart Ways to Pay off Student Loans Fast,” with a new tip each day. Here is Tip #1:
Tip #1. Pick the shortest loan repayment program you can afford.
If you have federal student loans, there are four different loan repayment plans you can select:
- the standard loan repayment plan, where you pay a minimum of $50 a month and your payments last for as long as 10 years;
- the extended repayment option, which also requires at least $50 monthly payments, but which lets you pay off your educational loans over 12 to 30 years;
- the graduated repayment program, which lasts from 12 to 30 years and allows you to pay as little as $25 a month; and
- the income-contingent repayment plan, which permits you to make payments as low as $5 a month and which lasts for 25 years.
Bonus Tip: Don’t make the mistake of just picking the option that lets you pay the smallest monthly payment. That may help your cash flow in the short term, but in the long run you’ll pay thousands more in finance charges.
The best strategy: Pay as much as you can possibly afford on your student loans. If you can’t swing the standard repayment plan (with a 10-year payoff), and you have to choose a longer repayment plan, then at least make extra payments on top of your normal monthly payment.
Next Step: Even if you can only afford to throw an additional $25 or $50 a month on top of your regular payment, every little bit will help. Sending in “extra” payments is a short-term financial challenge, but if you go ahead and bite the bullet now, making sacrifices in the near-run, you’ll be much better off in the long haul. Next Tip
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