3 tips on making extra student loan payments
With government funding running dry on student loan aid, borrowers may have to fend for themselves. Making extra payments can help. (iStock)
Many borrowers are having difficulty sticking to their student loan repayment plans.
Before the CARES Act, nearly 20% of U.S. federal student loan borrowers had fallen into default on their loans, according to a story from The Pew Charitable Trusts. Likewise, a study from the Brookings Institute showed that 23% of households with student loan debt were "behind" on their loan payments -- and more than half of them directly cited COVID-19 as the reason they couldn't afford to pay.
Through a CARES Act extension under President Joe Biden, federal student loan borrowers are seeing some financial aid in the form of suspended loan repayments through Sept. 30, 2021.
"In addition, the CARES Act extended the current tuition assistance allowance for employers under Section 127 of the tax code to include student loans," said Kevin Hartnett, a wealth advisor at Sensenig Capital Advisors, in Coleville, Pa. "Employers can now pay up to $5,250 toward student loans on behalf of employees and these payments will not be included in the employee's taxable income. This change now incentives employers to make these contributions much like the incentives in place to contribute to employees retirement plans."
But if you have private student loans, the CARES Act doesn't offer a reprieve. If you're struggling to pay off your student loans, check out your loan refinance options and compare loan servicers on Credible.
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What are the efficient ways to pay off student loans?
If you can absorb some short-term financial shortfalls, a good way to get rid of student loans make extra payments and pay off the debt faster. You can:
- Consider a student loan refinance of your private student loans
- Be realistic about where loan repayments fit in your personal finance budget
- Take on a side hustle and put extra money toward student loan repayment
"There is no best method for every borrower," said Anna Serio, a commercial loan officer at Finder.com. "Now, more than ever, it depends on your individual financial situation."
1. Consider a student loan refinance of your private student loans
Amid today's low student loan refinance rates, many borrowers are seeking to change their repayment plans and refinancing their private student loans to lower interest rates, which can help them put extra money toward their monthly payments. (You can get a sense of what your new monthly amount due would be by using Credible's free repayment calculator).
"Student loan refinancing can be a good way to save money on interest for qualified borrowers," said Robert Farrington, the creator of The College Investor website. "Right now, interest rates are at historic lows, so if you don’t qualify for any loan forgiveness or have a private loan, it can make sense to refinance to take advance of the low-interest rates and save money."
If you think a loan refinance is the right step, then check out Credible, which offers an online tool that compares interest rates from multiple student loan servicers simultaneously.
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2. Be realistic about where loan repayments fit in your personal finance budget
If you have other debt, like outstanding credit card balances, take advantage of the pause in federal student loan repayments pause to focus on paying that debt first. "If you’ve lost your job or income due to COVID-19, it’s best to focus on staying on top of the bills that are immediately due than paying off student debt," Serio said.
If you do have multiple high-interest debts, a debt consolidation loan might make it easier to manage by shifting them into a repayment plan with a single monthly due date. You can visit Credible to see the best debt consolidation plan for you and consult with a financial professional if you have any questions.
Depending on the amount you owe in credit card debt, too, balance transfer cards with a 0% intro period may be another option to consider. Credible can help you compare and contrast multiple credit card types so you can find the perfect fit.
"For now, the best strategy might be to look at your budget and see how much you can comfortably afford to pay toward your student loan for that month and putting that money toward your principal," Serio added.
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3. Take on a side job and put extra money toward student loan repayment
Matt Schmidt, founder at Diabetes Life Insurance Solutions, paid off his student loan debt early by taking on side jobs and putting extra money earned toward his principal balance. "As an individual who managed to pay off student loans ahead of schedule, I recommend to make additional payments whenever the opportunity arises," Schmidt said.
He advises taking freelance gigs and steering extra money into your student loan account.
"Many people have 'side' hustles or side jobs, and many gig workers are getting paid via PayPal, Venmo, or by paychecks that can easily be deposited via smartphone," Schmidt said. "What better way to chip away at student loan debt than using this additional income to make periodic payments?" Extra income like this can help you pay off debt even faster.
"I had a side job of hanging drywall and got paid weekly from this job," Schmidt added. "As soon as I had the money in my account, I would go online and make an extra $100-to-$200 payment," he said. "Over time, this strategy allowed me to pay off the entire balance in nine years, instead of much longer."
Also, be sure to check the Credible marketplace to see if you can refinance your private student loans to lower rates so that these extra payments have a bigger impact on your principal balance.