How to Pay off Student Loans in 5 Years
Have you ever asked, “how to pay off my student loan?” Well, paying off your student loan over five years can save you thousands of dollars in interest. It can also free up funds that can be used for other financial obligations and goals such as saving for a home or planning for retirement.
Review Your Loans
It is important to review all your loans to get an overview of your debts, and when you will have to pay them off. In addition, do not forget your family loans and other debts, like credit cards. It is important to determine when each loan is due for repayment, as the repayment schedule can vary from loan to loan, and even from student loan to student loan (federal loan, state loan, lines of student loan, etc.).
In general, start by paying off the debts with the highest interest rate, for example, credit cards. However, it is imperative to fully understand the terms of each debt.
Non-Repayment Period
Once you have completed your studies, you are entitled to a 6-month non-repayment period, during which no interest is charged on your federal loan. After this period, you must start repaying your student loan. Contact your loan provider to find out the interest charges on your loan.
The 6-month non-reimbursement period begins once:
- You have completed your last term of study
- You change from full-time to part-time studies
- You leave school or you are absent
Line Of Credit
If you have a line of credit, during your studies you must make at least interest payments. From the time you graduate, you can pay off your line of credit, but you can also continue those interest-only payments for 24 months. At the end of this period, the line of credit is converted into a fixed-rate term student loan for repayment purposes (only if the loan exceeds $5,000). Student lines of credit approved can be converted to student loans, otherwise, they move to the 1% principal and interest repayment stage.
Options To Consider
If they can afford it, students can also pay more than the minimum interest payment while in school. Students continuing their studies or delaying their graduation date can increase the amount of their line of credit, if they need more funds. If they wish, students can also start their repayment earlier to make it more feasible to pay off within 5 years. On the state side, however, the terms of reimbursement vary from state to state. To know them, visit the state government website. In the case of federal and state loans, there are also options for students who continue their studies:
Early Payments: students can make payments anytime on your loan. They do not need to wait for the 6-month non-refund period to end. If students repay their loan in full before repayment begins, no interest will be charged.
The reimbursement of the student loan is carried out in two stages:
First Phase
Second Phase
The Deductible: it is generally spread over two to six years, the time for the student to complete his studies (without having to repay the loan immediately).
During this period, the student can opt either for a partial deductible and reimburse only the interest, plus possibly the insurance premiums (this disability-death insurance is not compulsory, but strongly recommended), or for a total deductible.
During the second phase (known as amortization), which in principle begins when entering working life, the student repays the credit. The length of this period varies depending on the first. The total duration of the student loan can reach up to eleven years. It is possible to repay a loan early, without penalty. To do so, simply send a handwritten letter to your bank requesting full or partial repayment of the credit or go directly through your advisor. One month's notice is often required.
Need an Extension?
It is always possible to negotiate this on a case-by-case basis, but without any guarantee of results. It is, therefore, better to plan ahead when taking out the loan. You can foresee the case of an extension as soon as you take out the loan with your banker or only when needed... but generally, it is better to be in a position of strength before signing for the loan.
Strategies to Pay Off Your Student Loans
Here are some strategies to help you pay off your student loan in five years:
Get motivated by using a student loan payoff calculator
If you want to pay off your student loans as quickly as possible, you need a clear picture of your current repayment plan and how additional payments will affect you. Visually seeing how much interest you can save should be extremely motivating and set the tone for your rewards journey.
Let's say you owe $50,000 at an average interest rate of 6% over a 10-year payment term. Your current monthly payment would be about $555. With so much debt, you would have to be aggressive to meet his five-year term. At 5% interest, you would have to make a monthly payment of $1,132.
Paying off $70,000 in student loans in 5 years
With this level of debt, you would have to pay $1,321 each month to pay it off in five years. That's not impossible if you have an income of $60,000 per year or more, but it may require some changes. Maybe you could leave your car at home and use the bus or bike to get around. That would free up almost an additional $400 per month.
Paying off $80,000 in student loans in 5 years
If you owe $80,000 at 5% interest, you would have to shell out $1,510 a month to pay off your student loans over five years. This aggressive payment schedule could be difficult to maintain. However, you could, if you make other changes. You could find a side hustle or second job to increase your income or get a roommate to lower your housing costs.
Scaling Back
This might be possible, but it would require additional discipline. Any medical issues that you had the responsibility of paying could ruin your chances. You should cut down on certain kinds of entertainment such as eating out all the time, taking a luxury vacation, or even going on too many dates instead of using those funds to pay the bill. It would be recommended that you cut back on those things, so you can stick to the goal of paying off your student loan within 5 years.
There are other things you could scale back on. For example, you could replace your cell phone plan with a cheaper provider, use your heater and air conditioner less often, and avoid unnecessary purchases.
Increasing Income
There are things you can do to increase your income; some of which are:
- Taking on a second job or part-time position, moonlighting as a bartender
- Selling products you already have on Ebay, and other similarly related websites
- If you are in college, find a part-time job on campus
- Tutoring other college students
- Party promoter
- Working as a clown or magician at kid’s parties
- Become a DJ at night, if you are into music
- Become an Uber driver, Uber eats or Door Dash driver
- Use a passionate hobby to make money such as sewing, painting, craft, gardening, etc
- House sitting and/or pet sitting
- Virtual Assistant – join Fiverr.com and post a gig offering that service. You can also offer the service on platforms like Upwork and People Per Hour.
- Use your web design skills to offer services to business owners, if you have those skills
- Join different online focus groups to fill out surveys
- Mystery shopping – you can find those jobs on Craigslist and other online platforms and apps
- Work as a Freelance Writer – write college papers and other correspondence to earn extra cash.
- Work as an editor, correcting college papers and articles
- Creating videos for online entrepreneurs
There are so many creative things that you can do to earn extra cash. However, if the extra work is interfering with your main job and your college studies, the next option is to find a job that pays more.
Approaching Your Employer
You could also ask your current employer for a raise and whether the company offers student loan repayment options. You never know unless you ask. Many companies love to see their employees excel. In addition, if your college major is going to provide you with expert skills to do a better job at work, then you can negotiate something with your employer.
Finding Scholarships And Grants
It is possible to find scholarships and grants to help you repay your student loan or loans. This is especially true if you major in education or medicine. You may still be able to locate repayment assistance programs to help you get rid of your student loan debt.
Many non-profit organizations and the federal and state governments offer grants and scholarships to aid students through college. Some scholarships and grants are specific to a specific field of study. In fact, it is possible to find scholarships for being a resident and working in a certain state.
Partnership for Public Service offers information about loan forgiveness and student loan assistance.
The U.S. Department of Education also offers a ton of information that can steer you in the right direction.
Staying With Parents
Student loans can be a bit of a challenge for those who want to repay their loans in 5 years. Consider staying with your parents or relatives to save money, which you can eventually use to pay down your loan. However, be mindful that you should let your parents or relatives know the reason for staying with them and most of them will support your goals and ambitions.
Refinancing the Loan
Here is an overview of how the refinancing ladder works:
Start by refinancing to a long-term loan. This may seem counterintuitive when you consider that you want to pay off your student loans in five years. However, refinancing to a longer-term loan (for example, a 20-year term) allows you to get a better interest rate than your current loan, while also giving you the flexibility to pay less on your student loans if you need to. Paying off your loans over five years is a great plan, but life can get in the way. The long-term loan provides a safety net.
Making Large Payments
Make large payments upfront to lower your balance. Even if you have low minimum payments, make as large a payment as you can. This will aggressively pay down the principal balance of your loan. Then refinance again at a lower interest rate.
Once you've eliminated a large portion of your loans, you refinance to a shorter payment term (for example, 7, 10, or 15 years) with a new lender.
Your monthly payment should not have to change much, since your total balance is significantly lower from making large payments upfront during your first refinance.
Big Prepayments
Keep making those big prepayments. Keep lowering your balance by making large additional payments. Refinance for a third time for a term of five years. Once your loan is one-third or less of your original loan balance, you refinance to a five-year fixed or variable rate loan with a different lender.
It is important to refinance with a new private lender each time you use this approach. If you use certain partner lenders, you may be eligible for huge cashback bonuses that can be used to reduce your loan balance.
Student Loan Discounts
Make sure you request student loan discounts from your lender. This is an easy way to ensure that more of your payment goes toward principal, rather than interest. Most lenders offer an automatic payment discount (for example, a 0.25% interest rate reduction) just for signing up for automatic payments. Your lender may offer other discounts, such as a loyalty discount for using multiple financial products.
Be sure to check directly with your lender or loan servicer to determine if you qualify for any student loan discounts that could save you money.
Conclusion
There are other easy ways to pay off student loans and relinquish the financial burden. However, for the most part, you should remain conscientious and disciplined, even when life throws you a curveball. To find more ways for paying off your student loan, visit the Goalry Platform and head over to the Loanry store.
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