What would you do if money was no object? Travel around Europe? Maybe you’d buy a house or have a child. Heck, you might order pizza every night just because you could.
Unfortunately for many people with student loan debt, money is an object. Many of us dream of paying off our loans so that we can finally attain other financial goals.
We talked to representatives at two top private student loan lenders for tips on how to pay off private student loans more quickly… and strategically.
Lauren Anastasio is a CFP at SoFi, and Ashley Boucher is a spokesperson from Sallie Mae. The reps gave us insider tips for paying off your loans faster.
1. Ask about lender-specific discounts
Call your private student loan lender or search its website to learn about lowering your loan interest rates — you will likely have options.
Both SoFi and Sallie Mae offer a 0.25 percentage-point interest rate discount for borrowers who set up automatic payments. Think of it as a reward for paying on time every month.
“Some private student loan companies also offer a loyalty discount when you have another eligible account with them,” Anastasio says. “If you’re already a member with SoFi, for example, you receive an interest rate discount of 0.125% [ points] on all new loans.”
When you spend less on interest, more of your monthly payment goes toward the principal loan balance. Not only can you eliminate loans faster, but you could pay less overall.
2. If possible, make payments in college
Sure, you don’t have to touch your loans until after graduation. But making small payments while you’re still in college could get you ahead of the game and accrue less interest.
“Sallie Mae customers can choose to make monthly interest-only or a $25 fixed payment while in school,” Boucher explains.
Does $25 monthly sound doable? A student who makes $25 monthly payments over four years could pay off $1,200 of their loans before graduating.
3. Consider refinancing for a lower interest rate
Have you already graduated? You might consider refinancing.
“Refinancing could potentially lower your interest rate by bundling your student loans into one new loan,” Anastasio says. “If you shorten your loan term, you may be able to pay off your student loans earlier and pay less in interest over the life of your loan.”
Interested in refinancing? Anastasio says you’ll likely need a good credit score, and either a cosigner or enough income to make the monthly payments.
4. Make payments manageable for your budget
We’ve all read at least one story about someone who paid off $30,000 in student loans in only six months. And that’s great! But it isn’t a feasible goal for everyone.
“Don’t stress about trying to be debt-free and throwing all your money at loans,” Anastasio advises. “Prioritize creating a budget that allows you to make sure you’re covering the minimum each month.”
This is also where automatic payments come in. By setting and forgetting them, you can ensure you make your minimum payments on time every month.
But Boucher points out that paying a little extra here and there can make a difference. “You’ll pay off your loan faster, and you’ll pay less interest,” she says. Sallie Mae’s accrued interest calculator can help borrowers figure out how much you can save on interest by increasing your payment amount.
5. Do not ignore your payments
Just as we’ve all read about someone who paid off a gigantic amount of debt in a matter of months, most of us know at least one person who is just ignoring their student loans. Do not be that person.
If you don’t pay, lenders could take legal action. These repercussions are particularly severe for private loans, but you can face consequences like default and wage garnishment for ignoring federal loans, too.
When you avoid making payments, your loan can go into default, resulting in extra fees, a lower credit score and maybe even a trip to court. A private student loan statute of limitations means the lender has a certain amount of time to sue you, six years in most states.
“If you run into trouble, don’t ignore it,” Boucher says. “Touch base with your cosigner if you have one, or contact your lender or servicer.”
6. Ask about forbearance and forbearance alternatives
If you’re in a financial bind and are having trouble making your minimum payments, you don’t need to resign yourself to defaulting. Ask your lender about forbearance to postpone payments while you get back on your feet.
The downside of forbearance? Interest still accrues even when you’re on pause, so you’ll end up paying more in the long run. Also inquire about alternatives that could keep you from dragging out your student loan payments.
“You can ... ask for payment modification options, which may allow you to make interest-only payments for a little while or in other ways temporarily lower your amount due to help you get back on your feet,” Anastasio says.
Sallie Mae’s Graduated Repayment Period is a unique option for borrowers struggling to pay. “The Graduated Repayment Period allows students with eligible Sallie Mae loans to make 12 months of interest-only payments before they transition into making full principal and interest payments,” Boucher explains.
The Graduated Repayment Period is available for one full year after a borrower’s grace period ends. So if you don’t find a well-paying job right out of school, for example, you can keep your payments low and still avoid forbearance.
SoFi members who lose their job have the option to apply for Unemployment Protection for three months at a time for up to 12 months. Loans are placed in forbearance, but because interest accrues during this time, SoFi recommends setting up interest-only payments if you can.
Still struggling to pay off private student loans?
Everyone’s situation is different. Refinancing, payment modification and even forbearance might not work for you.
If you’re out of options, talk to your lender about whether you could qualify for student loan discharge. You may also need to seek legal counsel to determine whether you qualify to discharge your student loans in bankruptcy.