Strategies for Paying Off Student Loans Faster

roth-iraWith higher education costs skyrocketing, many graduates these days are saddled in debt that can take years â“ no, decades â“ to pay off. It’s one thing if you have a job such as lawyer or doctor that makes it easy for a young grad to pay back her student debt quickly. But given today’s treacherous job market, and the reality that many popular careers don’t pay generous salaries to entry-level positions, many graduates have to think strategically about how they’ll pay off their student loan debt.

It’s a good idea to evaluate your student loan situation shortly after (or even before) graduation, so you don’t make mistakes early on that you regret later on. Many colleges and universities have student loan counselors and other experts on hand to help guide you through the initial process. But it’s good to understand the basics and take steps to pay off your student debt in timely fashion.

Here are some tips for paying off student loan debt faster (and cheaper):

  • Assess interest-rate opportunities. Today’s historic-low interest rates offer recent and not-so-recent graduates the opportunity to lower the interest rates on their student loans. Federal subsidized loans today carry a 3.4% interest rate, while un-subsidized loans carry rates of 6.8%. Other types of loans carry even higher rates. (Keep in mind that you can deduct up to $2,500 annually of student loan interest on your taxes, assuming you meet the income limitations.) But while student loans tend to carry lower rates than many other types of loans, in today’s environment, private lenders might be willing to let you give you even lower rates interest rates â“ and you can still take the tax deduction. It’s worth at least exploring that option. Moreover, if you own a home, also consider whether using home equity to pay off student loans makes sense, given today’s low rates. A word of caution, however: You may want to keep your student loans as student loans, as you have more flexibility for deferring them if you ever get into a financial bind.
  • Compare repayment plans. Student lenders typically offer several different types of repayment plans, from 10-year plans in which you make fixed payments over a 10-year period to “graduated” plans in which payments increase every two years, assuming that your income will be increasing as well. If you consolidate your loans after graduation, you can stretch repayment for up to 30 years, though you’ll pay a lot more in interest if you do so. If you are entering a career in public service, such as working for government or as a teacher, you will likely qualify for the Public Service Loan Forgiveness Program. If your household income is rather low, you might also qualify for “income-based repayment,” which ties your payments to your income. Which repayment plan makes sense for you depends on your salary after graduation and other financial priorities. It’s great to pay off your student loans quickly, if it’s possible, but keep in mind that it’s lower-interest debt, especially if you qualify for the student loan interest tax deduction. Focus on paying off higher-interest credit cards and even stashing something away for retirement before putting more than necessary toward your student loans.
  • Save wisely. With a little creativity, you can probably come up with some ways to save up extra to put toward your student loans. Consider setting up a separate savings account in which you stash extra money you get, whether it’s a little from every paycheck, gift money or your federal tax deduction. Then use that money to pay extra on your student loans each month or year. Even paying an extra $50 per month on a $50,000 loan with a 6.8% interest rate could save you about $2,300 in interest over a 10-year loan and shave a year off the repayment term, according to this college finance calculator.
  • Invest with care. You might be able to defer payments for a while, such as during the six-month loan grace period right after college. Consider using these times to sock away money in investment accounts, such as a taxable brokerage account. Then invest the money across a broad range of investments, such as domestic and international stocks and bonds. By generating higher returns on these investments, you can use those earnings to pay down your student loans later on. Remember, that ultimately student loan debt is lower-interest debt than most other types of debt. While you want to pay it off a good pace, you might do better putting extra money into investment accounts, assuming you can earn higher returns than the interest rate you’re paying on your student loans.

Kelly Spors writes for, a leading retirement and Roth IRA resource. A former Wall Street Journal reporter, Kelly has written about small business and personal finance for The New York Times, Entrepreneur magazine, Yahoo! and

photo by PT Money

Written by Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER
. Happy investing 🙂

Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER and FACEBOOK . Happy investing 🙂

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