Student loans are a buzz kill to any reality check. No matter the scholarships, grants, and help you receive it seems impossible to escape taking out loans to cover the remaining costs. My friend and fellow Spokester, Aly shared an article on Young & Free Indiana from Mint Life titled, "Don’t Defer! 5 Ways to Pay Student Loans Off Early." If you want to pay off your student loans early, keep reading!
Loan capitalization costs
Here's why: If you've taken out an unsubsidized student loan, it likely starts accruing interest as soon as you sign your name to it - and continues doing so, even when you haven't started making payments. That means if you have a $5,500 loan at 6.8 percent interest and hold off on making payments until after graduation (assuming you're in school for 4 years and don't start paying them off until 6 months after graduation), then you'll end up owing a whopping extra $1,500 in accrued interest. Yikes!
That means you're paying $7,000 instead of $5,500, and the cycle will keep going as interest builds on the overall loan so you'll owe even more.
In short, if you start paying off your student loans while you're still a student, the monthly payments will be less than if you wait until after graduation and you'll end up paying less overall.
While starting to pay off loans before you've graduated sounds great in theory, there's no doubt it can be really rough, if not impossible to start making payments while you're still a student. Here are five tips for coming up with the extra cash to start paying off your college loans now, before they increase - and if you're already in the I'm-a-recent-graduate-paying--on-all-that-interest boat, these tips can still help!
1. Shave 10% from your monthly spending
Try slicing a small percentage from your overall budget, though, and redirect the savings to your student loans.
If you’re living on campus with a meal plan and are spending $50 a week on items like entertainment, supplies and gifts, for instance, try shaving $5 off per week, which amounts to just 72 cents per day.
Use the resulting $20 monthly savings to pay down your student loan debt.
2. Make it automatic
Rather than waiting until the end of the month to come up with a chunk of money to pay toward your student loan, which can be challenging, automate frequent small savings withdrawals.
For instance, every Wednesday, have $5 withdrawn from your checking and deposited into your savings account, or have the $5 automatically posted to your student loan account.
Many student loan providers will lower your interest rate by about .25 percent if you set up automatic payments, and paying weekly means you make 13 months of payments per year.
3. Earmark cash gifts
When you get a cash gift from family members like your parents or grandparents, who may encourage you to buy or do something fun with the money, stay focused on your goal of not graduating in deep debt and immediately apply the cash to your student loans.
4. Collect spare change
Spare change may seem insignificant, but it can quickly add up to a student loan payment. Find 50 cents a day, and you’ll have $15 towards your loan at the end of the month.
Save your change throughout the week, and ask your parents to start collecting theirs. When you explain that it’s for the worthy cause of paying off your student loans, they’ll probably agree.
Use whatever change you save each month to make a payment toward your loan.
5. Earn extra cash
A wide variety of opportunities exist for students to earn money for paying off student loans, and in some cases you don’t even have to leave campus.
Try tutoring, participating in studies and surveys, donating blood and plasma, re-selling used textbooks, babysitting and finding a job in your department.
[All credit to Don’t Defer! 5 Ways to Pay Student Loans Off Early goes to this Mint Life article]
Hope this helps! Keep your eyes on the prize (which is living debt-free) and don't give up. Even if you think you can't stretch your budget a dime more, I know you can. If you're still in school now is the time to see just how far a dollar will go. Trust me, do it now so you don't have to continue that lifestyle even when the paychecks start coming in.