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5 Ways to Pay Off College Student Loans Faster

A new study from the Federal Reserve Bank of New York released this month has proven a direct correlation between the rise in student loan indebtedness and the fall of home ownership by young adults. The study shows that home ownership by 28, 29 and 30 year olds have been falling steadily over the past several years. In 2004, for example, homeownership for 30 year olds stood at 31 percent, but it dropped to 21 percent in 2016. What’s more, the study also shows a significant increase in 23 and 25 year olds returning home to live with their parents after college over the same period. In 2004, just 33.5 percent of 23 and 25 year olds lived with their parents, but the number increased to 44.9 percent in 2015.

Essentially, student debt is leading to a delay in major life decisions, such as owning a home. So if you are a college student, you should aim to graduate with as little debt as possible and have a plan to pay off your student loans as fast as possible. You don’t want your student loans following you for years. Instead, if you are smart and strategic about the repayment, you could shave years off your repayment and save yourself a substantial amount of money.

Here are 5 ways to pay off your student loans as soon as possible, so you can be debt-free sooner than later.

1. Opt for free or cheaper alternatives

During your early to mid-20s, your circle of friends will likely want to catch up over dinner, grab a coffee, or go places that cost money. While I am not saying you can’t have fun with your friends, you should look for a free or cheaper alternative to hanging out. Going to bars and clubs can be pricey with cover charges and the price of drinks. Instead, try Happy Hour or find clubs and bars with no cover charge. Free fun is the best type of fun. You shouldn’t have to spend a fortune just catching up with someone. Instead, try inviting someone over for a home-cooked meal, or host a fun activity at home like a game or paint night.

2. Stay in affordable housing

Look for affordable housing, so you can spend less on housing and contribute more to your student loan payments. If having an apartment in NYC is your dream, or if being a homeowner fresh out of college is a goal, seek and compare affordable and financially realistic options. After graduation, it is also smart to live at home for a short period of time so you can save money and repay your loans as soon as possible. Contributing a significant amount of your first two years of income to repaying your loans can make a huge difference in reducing your loan repayment term.

3. Supplement your income

Freelancing is a great way to make money on the side, so find a side hustle that can offer some extra income. Whether you babysit, tutor, teach lessons, or write, money made while freelancing can add up and supplement your income. Some people might even turn their side hustle into a business. You never know how successful you could be if you don’t try.

4. Watch your expenses

When you are working, you may be tempted to treat yourself to nice things more than you should. By watching out for unnecessary expenses and reducing them, you can live frugally and contribute more money to paying back your loans. Instead of buying coffee every morning, buy a coffee maker and find a blend that you enjoy. Saving money on “little” purchases, such as coffee and eating out, add up and can save you a lot of money.

5. Save during college

If you are in college, try to save money during your college years. Try to get a job that works with your schedule, such as work study or on-campus jobs, and save the money you make. Avoid expensive habits, such as eating out or ordering in, or buying things you don’t really need. By saving your money in college, you will have more money to contribute to paying back your loans and learn to be more frugal.

Frugality is not easy, but is necessary if you want to get rid of your student loans fast. When it gets tough, remind yourself that you have to make sacrifices in the short-term to reap the long-term benefits long-term. Every penny you save and apply towards paying back your student loans will help you shorten the period of repayment and achieve your goal of living debt-free.

Here are 2 scenarios of various student loans and varying repayment periods that will help you understand how student loans work and why you should pay them off sooner than later.

Note: These scenarios are just intended as examples. Lenders have different repayment methods, varying interest rates, and there are different variables in these scenarios, which may make payment terms longer or shorter depending on the situation.

Scenario 1

This scenario examines 3 repayment options for a student with a loan balance of $15,000, calculates the interest due, and sets out the amount paid over the repayment period. As you will see, the longer the repayment period, the higher the amount a student has to pay.

Payment over 15 years:

Loan Balance: 15,000.00

Loan Interest Rate: 6.00%

Loan Term: 15 years

Minimum Payment: $100.00

Monthly Loan Payment: $126.58

Number of Payments: 180

Cumulative Payments: $22,783.97

Total Interest Paid: $7,783.97

Payment over 10 years:

Loan Balance: $15,000.00

Loan Interest Rate: 6.00%

Loan Term: 10 years

Minimum Payment: $100.00

Monthly Loan Payment: $166.53

Number of Payments: 120

Cumulative Payments: $19,983.72

Total Interest Paid: $4,983.72

Payment over 5 years:

Loan Balance: $15,000.00

Loan Interest Rate: 6.00%

Loan Term: 5 years

Minimum Payment: $100.00

Monthly Loan Payment: $289.99

Number of Payments: 60

Cumulative Payments: $17,399.54

Total Interest Paid: $2,399.54

Comparison for Scenario 1

If you have a $15,000 loan balance with a 6% loan interest rate over a 15-year loan term and a minimum payment of $100, your monthly loan payment would be $126.58 and will require 180 payments. You will be paying $22,783.97 back to your lender with a total interest paid of $7,783.97.

If you have $15,000 loan balance with a 6% loan interest rate over a 10-year loan term and a minimum payment of $100, your monthly loan payment would be $166.53 and will require 120 payments. You will be paying back $19,983.72 to your lender with a total interest paid of $4,983,72.

If you have $15,000 loan with a 6% loan interest rate over a 5-year loan term and a minimum payment of $100, your monthly loan payment would be $289.99 and will require 60 payments. You will be paying back $17,399.54 to your lender with a total interest paid of $2,399.54.

By paying your loans over a 5-year term instead of a 15-year term, you can reduce your interest payment by an estimated 325%.

Scenario 2

This scenario examines 3 repayment options for a student with a loan balance of $100,000, calculates the interest due, and sets out the amount paid over the repayment period. As in Scenario 1, the longer the repayment period, the higher the amount a student ends up paying.

Payment over 15 years:

Loan Balance: $100,000.00

Loan Interest Rate: 6.00%

Loan Term: 15 years

Minimum Payment: $100.00

Monthly Loan Payment: $843.86

Number of Payments: 180

Cumulative Payments: $151,893.88

Total Interest Paid: $51,893.88

Payment over 10 years:

Loan Balance: $100,000.00

Loan Interest Rate: 6.00%

Loan Term: 10 years

Minimum Payment: $100.00

Monthly Loan Payment: $1,110.21

Number of Payments: 120

Cumulative Payments: $133,224.38

Total Interest Paid: $33,224.38

Payment over 5 years:

Loan Balance: $100,000.00

Loan Interest Rate: 6.00%

Loan Term: 5 years

Minimum Payment: $100.00

Monthly Loan Payment: $1,933.28

Number of Payments: 60

Cumulative Payments: $115,996.81

Total Interest Paid: $15,996.81

Comparison for Scenario 2

If you have a $100,000 loan with a 6% loan interest rate over a 15-year loan term and a minimum payment of $100, your monthly loan payment would be $843.86 and will require 180 payments. You will be paying $151,893.88  back to your lender with a total interest paid of $51,893.88.

If you have $100,000 loan with a 6% loan interest rate over a 10-year loan term and a minimum payment of $100, your monthly loan payment would be $1,933.28 and will require 120 payments. You will be paying back $133.224.38 to your lender with a total interest paid of $33.224.38.

If you have $100,000 loan with a 6% loan interest rate over a 5-year loan term and a minimum payment of $100, your monthly loan payment would be $1,110.21 and will require 60 payments. You will be paying back $115,995.81 to your lender with a total interest paid of $15,996.81.

By paying your loans over a 5-year term instead of a 15-year term, you can reduce your interest payment by an estimated 325%.

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Vanessa Sewell is studying Economics and Communications at Boston College. She is from Bronx, NY. Vanessa has worked on topics related to lifestyle, fashion, culture, and education during her time at Boston College. During her free time, she can be found playing piano and guitar or jamming to Spotify.