How to Reduce Student Loan Debt

Take advantage of programs to pay off student loans, strategize your payments for maximum benefit and refinance.
Cecilia Clark
By Cecilia Clark 
Edited by Karen Gaudette Brewer

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While some student loan borrowers want to lower their monthly payments — even if that means they’ll be paying for a longer time — others are more eager to ditch the debt for good.

There are several reasons you might want to lower your student debt. For example, you may want to focus on other financial goals. Or, maybe the student loans negatively affect your mental health and you want to alleviate the burden.

If you have a stable income, an emergency fund, are saving adequately for retirement and don’t have high-interest debt, you could be in a good position to lower your student loan debt. Here are some methods to help.

1. Make smarter payments

Since you have to make monthly student loan payments anyway, you might as well get the most out of them. You can strategize your payments to decrease your overall student loan debt much faster with a few adjustments.

Make payments while you’re in school — If you haven’t graduated yet, or are in a graduate degree program, make payments during your in-school deferment period. Of course, you’ll get the most benefit if you can make the total post-graduation payment amount, but anything helps. And if your student loans are still accruing interest while you’re in school, aim to at least pay the interest each month. That way, you avoid capitalization (and paying interest on your interest) once you graduate.

Pay a little extra — Committing a small amount on top of your regular student loan payment can go a long way in helping you bring down your total debt. For example, let’s say you have $30,000 in student loans at a 5% interest rate. With a 10-year repayment term, you can expect payments of $318 per month. If you pay $50 extra each month, you can reduce the total you’ll pay by about $4,000 and pay off your loan faster by about a year and a half.

Use found money — Even one lump-sum student loan payment can significantly reduce your overall debt and repayment time. Consider the previously mentioned loan: If you make an additional payment of $2,800, which is about the average tax refund amount for 2020 filers according to the National Taxpayer Advocate, you could pay off your loan about a year sooner. If you devote your tax return to your student loans every year, you may be able to cut your loan repayment time in half.

Make biweekly payments — Submitting half payments every other week instead of full payments once a month means you will make one extra payment each year. Biweekly student loans payments also mean you will pay off your loan a whole year sooner and cut down your total costs. For example, on a $30,000 loan at 5% interest, you’ll pay about $950 less.

Get a discount with autopay — Many lenders offer interest rate discounts if you sign up for autopay. The most common discount reported to NerdWallet is 0.25%. Granted, this won’t decrease your student loan debt significantly by itself — a 0.25% interest rate discount on the $30,000 loan will shave two months off of your repayment time if you stick with the initial payment amount. However, combining this method with others can give you a meaningful boost while ensuring you never miss a payment.

2. Ask your boss to pay

Some company benefits packages include student loan repayment. For example, Fidelity Investments will pay up to $15,000 on your debt starting December 2021. However, this is still a rare perk, so check with your human resources department to see if you are eligible for student loan repayment and what your benefit entails.

3. Use refinancing to your advantage

You will lose federal benefits if you refinance your federal student loans. Before doing so, be confident in your employment status and ability to repay the new bill.

Refinancing your student loans won’t automatically bring down your student loan debt. But it can bring down your repayment total and cut down your repayment time.

When comparing student loan refinance offers, look for those that have lower interest rates and shorter terms than you currently have. This will help you cut the total costs most while paying off your loan the fastest. Refinancing with this strategy will likely increase your monthly payment amount. But if it doesn’t, commit to paying at least what you paid previously for an even more significant benefit.

For example, if you refinanced your $30,000, 10-year student loan with 5% interest to a seven-year loan with 4% interest, your payments would be about $92 higher each month. But you’d pay off your loan about three years faster while saving a little more than $3,700.

To get the best deal to refinance your student loan, you need a stable income, a credit score in the high 600s and a debt-to-income ratio of 50% or better. In addition, you may get an even better offer if you add a qualified co-signer to your application. But before doing so, make sure you and your co-signer understand the implications and agree on the terms.

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