10 Ways To Pay Off Your Student Loans in One Year
The CARES Act of 2020 allowed borrowers to pause their payments on federal student loan debt without accruing any new interest. After several extensions, that deferment period is finally set to expire on May 1, which means millions of Americans will soon have to start sweating their student loan payments once again.
But instead of sweating, you could always strategize.
It’s entirely possible to pay less than you owe and settle your debt well before your loan term expires — in as little as a year, in the best of cases. The following is a collection of tips and strategies for ambitious borrowers with the lofty goal of settling their college debts in just 365 days.
1. Calculate Your Payments
The surest way to pay off any loan early is to pay more than you’re required to every month — and when it comes to extra payments, a little can go a long way. The Department of Education’s Federal Student Aid (FSA) office gives the example of a 10-year loan of $15,000 with a 4.9% interest rate.
By paying just $15 extra every month, the borrower saves $395 and shaves a year off the loan. An extra $30 saves $708 and reduces the term by one month shy of two years. An extra $60 results in savings of $1,174 and a debt-free life three years ahead of schedule. Use a student loan repayment calculator to determine exactly how much extra you’ll have to pay each month to meet your one-year deadline.
2. Start Early
If you’ve got the time and energy, pick up extra work. Whether your current gig offers overtime or you can make money on the weekends cutting grass, consider taking on a part-time job to add to your monthly income. Who knows — maybe working 60 to 80 hours a week for a year will eliminate thousands of dollars from your indebtedness? If so, the short-term grind will be worth it for the long-term gain. You don’t have to make loan payments while you’re still in school or during the grace period that follows, but if you can, you definitely should. FSA suggests paying at least enough to cover the interest your loan accrues every month so there’s nothing to add to your principal when you do enter the official repayment period.
3. Pursue a Job That Qualifies For Loan Forgiveness
If you’re one of the millions of people who left a job as part of the Great Resignation or you’re considering looking for greener pastures in 2022, your next job could be your ticket out of student loan debt. Around 35 million jobs now qualify for the Public Service Loan Forgiveness Program, thanks to an expansion of the program in October 2021, according to CNBC. About 22 million eligible positions are federal, state, and local government jobs and 13 million are with nonprofits.
4. Or Find Private Sector Work With Student Debt Benefits
Many employers outside of the public and nonprofit sectors offer help with student loans, as well. The Consolidated Appropriations Act of 2020 made it easier for companies to offer student loan assistance as an employee benefit — and many employers are doing just that to attract and retain top talent, according to Forbes. Among the big-name companies that offer some kind of student debt assistance are Chegg, Carvana, Ally Financial, Estée Lauder, Hulu, Google, Terminix, SoFi, and Lockheed Martin.
5. Serve Before You Work
You’ve probably already learned that you can save more money by doing more things at home. Making your meals, watching movies on Netflix and even mixing your own cocktails can be much cheaper than gIf you’re fresh out of school and you want to delay your entrance into the workforce, consider volunteer service in an organization like the Peace Corps or AmeriCorps. You’ll gain exposure to different cultures, a sense of purpose, lifelong bonds with fellow volunteers, education awards, monetary stipends, and a bright spot on your resume — but you might also be able to eliminate your student debt. Service in both organizations can result in loan forbearance, forgiveness, or cancelation, but the method and amount of the reduction vary by loan type.
6. Enroll in Automatic Debit
Many loans incentivize borrowers to enroll in autopay by offering a reduced interest rate for those who authorize automatic debits. For all but the most modest of loans, you’ll have to pay more than the loan agreement requires every month to be out of debt in anything approaching a year, but a lower interest rate means less money paid overall. As an added bonus, auto-pay prevents you from ever accidentally missing a payment.
7. Set Up Payroll Allotment
Check with your job’s human resources department and see if your employer offers payroll allotment. With payroll allotment, a certain amount of your regular paycheck goes directly into another account and not into your main checking or savings accounts. If you don’t see the money, you won’t be tempted to blow your paycheck. Soon enough, you will have accumulated a nice chunk of change that can be used to make a lump sum payment on your student loans.
8. Hold Off on Saving For Retirement
Running contrary to standard financial advice is the strategy of opting out of your company’s 401k plan or your own IRA and using what would have been your contributions to pay down your student debt. Only you can decide whether being debt-free in just one year is worth missing out on 365 days of retirement savings, but young graduates have time on their side — and enjoying their 20s without student debt might be well worth the tradeoff.
9. Get a Roommate
If college didn’t burn you out on shared living spaces, consider cutting your housing bills, utility bills, and subscription bills by taking on a roommate — at least temporarily — if your space provides the opportunity. Apps like SpareRoom, Roomi, RoomEasy, and BunkUp make finding a roommate safe and easy.
Moving back home is the least favorable option for many college grads, but in most situations, it’s an opportunity to drastically reduce living expenses. If your parents would love to have you home to snuggle with one more year — and they’re willing to let you off with low to no overhead costs — this is a sure-fire way to cut costs and dedicate yourself to debt servicing.
You might be ready to hit the ground running. Or, you might be saying, “Ehh … maybe in a few years.” If paying off your debts within a year is simply not feasible, look at your next option: Figuring out how to reduce the amount of time you’re in debt.
The average payback schedule is 10 to 20 years, so your goal should be how to reduce that schedule down to seven, five or even two years. This can be accomplished by creating a detailed budget, utilizing a debt snowball strategy and implementing some of the 10 tips above.
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