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While some college graduates owe only a few thousand dollars in student loans, many borrowers owe much larger balances. Often times, a graduate’s student loan debt falls well into six-figure territory, especially those with a professional degree or an education at a private school.
With a standard 10-year repayment plan, this type of debt can amount to a monthly payment of over $ 1,000, easily affecting your budget and your ability to save for other goals. Also, owing a lot of money can be very stressful.
If you have $ 100,000 in student loan debt, know that you are not alone. There are several options available to you to help you pay off your student loans faster and for less than expected.
Here’s everything you need to know about paying off $ 100,000 in student loans.
Consider a student loan forgiveness if you qualify
If you have federal student loan debt, you may be able to take advantage of a student loan forgiveness program. This could eliminate a significant portion of your student loan debt with no obligation to repay that amount.
The Public Service Loan Forgiveness Program (PSLF) is available to eligible borrowers working in the public service. This includes employees working for federal, state, local, or tribal governments in the United States, or certain nonprofit organizations. Monthly payments are set according to an Income Based Repayment Plan (IDR). If you qualify for the PSLF program, any student loan balances remaining on your direct loans will be forfeited once you have made 120 qualifying monthly payments.
Let’s say you have a principal balance of $ 100,000 at an interest rate of 6%. With a monthly payment of $ 600, it would take you 30 years to pay off your debt. Including interest, your total repayment would be $ 215,838.
But with the cancellation of your student loan, you could be out of debt in a third of the time. If your monthly payment were the same ($ 600), you would only have to contribute $ 72,000 ($ 600 x 120 payments) to your student loan debt before the remaining balance could be written off.
Credible allows you to compare student loan refinance rates from various lenders in minutes.
Consider an income-based refund
Income-based repayment plans, or IDRs, are one of the benefits of most federal student loans. These plans establish a monthly student loan payment based on both your annual income and the size of your household.
These are the four types of IDR plans for federal loans.
- Pay As You Earn Reimbursement Plan (PAYE Plan)
- Revised pay-as-you-go compensation plan (repayment plan)
- Income Based Repayment Plan (IBR Plan)
- Income-based repayment plan (ICR plan)
These IDR plans generally have a maximum monthly payment of between 10% and 20% of your discretionary income. If your income is low enough, your monthly payment could even be $ 0.
With IDR plans, you make your monthly payments for a set period, usually between 20 and 25 years. Once this period has elapsed, any remaining loan balance will be canceled. While this option is time consuming, it can make your loan payments manageable.
If your loan balance is written off as part of an IDR plan, it’s important to note that you may have to pay income taxes on the canceled loan amount. Be sure to check current IRS regulations (and consider speaking with a financial professional) to see how IDR student loan cancellation could affect your taxes.
Refinance your student loans
A student loan refinance may be worth determining if you have private student loans, federal student loans (and are not eligible for a loan forgiveness), or a combination of the two.
When you refinance your student loans, you are actually taking out a new loan to pay off the original debt. This new loan can replace a single existing loan or combine several loans into one easy to manage account. The new loan can also help you lower your interest rate (s), lower your monthly payments, or get out of debt sooner (or all three).
Remember the 6% 30-year, $ 100,000 student loan we talked about above? If you were to refinance the same previously mentioned $ 100,000 student loan balance at 3.5% APR with a term of 20 years, your monthly payment would be $ 580, it would only take 20 years to pay off your loan, and the total amount reimbursed would be $ 139,200.
Not only could you reduce your monthly payments by $ 20, but you would pay off your debt 10 years earlier and save $ 76,800 in interest.
It’s important to note that federal student loans come with certain protections for borrowers, such as income-tested repayment plans, forbearance and deferral options. If you refinance your federal student loan debt into a loan from a private lender, you will lose these benefits and protections.
While this can be an attractive compromise for some borrowers, you may want to consider refinancing your private loans only.
Pay off the loan at the highest interest rate first
The Debt Avalanche Method is a way to reduce interest and pay off your student loan debt sooner.
This method focuses on paying off your highest-interest student loan balance first. You only make the minimum payments on your other loans and use any extra money to pay off your student loan with the highest interest rate. After that loan is paid off, you focus on the next highest interest rate and repeat the cycle until your student loan debt is gone.
This method saves you the most interest in the long run, but you can consider the debt snowball method as an alternative. With the debt snowball method, you pay off your smallest debt first, then move on to the next smallest debt, until you have paid off all of your debts.
Add a co-signer
If you are refinancing your student loans, adding a co-signer with good to excellent credit can help you get a lower interest rate. Having a co-signer gives the lender the assurance that someone will repay the loan in the event of default.
Your co-signer can be a parent, grandparent, spouse or sibling, but they don’t have to be a family member. Your co-signer can also be a friend or someone you trust.
Make sure you shop around for the best loan options and terms, with or without a co-signer.
With Credible, you can easily compare the student loan refinance rates of several lenders.
Set up multiple sources of income
In addition to getting the most out of your student loan repayment, you can work to pay off your balances earlier than planned through other means, such as earning more money from other sources of income, which you can direct to your home. student loan debt.
Side activities are a popular option, providing opportunities to earn extra money in your spare time, even outside of your daily career. A side activity might include private lessons, selling homemade products, or driving for a rideshare business. If you have any hobbies or creative skills, you can use them to generate side income as well.
You can also find ways to create passive income at the same time. Instead of working more for extra money, Passive Income Streams allow you to earn extra money without always trading your time for it – they’re more of a “set and (most importantly) forget it” approach.
Passive income opportunities can include things like investing, interest-bearing savings accounts, blogging, and setting up online courses. It takes some effort and time to get them up and running, but once they are established you may be able to make some extra money without active and regular participation.
Whether you choose a side business or a passive income opportunity, you could make hundreds (if not thousands) of extra dollars every month. The extra income could help you increase your budget and pay off your student loan debt faster.
A healthy budget can make it easier to manage your student loan payments and find extra money you can spend on your debt.
Spend time analyzing your typical monthly expenses, including recurring bills and discretionary expenses. Are there areas of your budget that you could cut back, like dining out or subscriptions that you don’t really need? If so, reduce or eliminate these expenses to make it easier to pay off your student debt.
Keeping a close eye on your budget can help ensure you have enough to invest for your loans. You can readjust on a daily basis, as needed, or as your financial situation changes.
Make additional monthly payments
If you’ve been successful in reducing your budget, earning extra income from a sideline, or both, you can direct the savings to additional payments on your student loans. This will help you get out of debt faster and pay less overall interest.
Let’s say you pay off the balance of a $ 100,000 student loan with an interest rate of 3.5% for a repayment term of 25 years. Your monthly payment would be $ 501. In the end, you would pay $ 150,187 in total (of which $ 50,187 is strictly interest).
But if you were to put even $ 60 more into your payment each month, the results would be amazing. You would pay off your debt in just over 21 years, saving you nearly four years, for a total of $ 141,287. That’s a savings of $ 8,900 in interest alone.
How long does it take to pay off $ 100,000 in student loans?
The time it will take you to pay off $ 100,000 in student debt depends on two personal variables: your current repayment plan and whether or not you are able to spend extra money on your loans each month. The more you are able to contribute to your debt per month, the sooner you will be able to pay off the balance (s) – and the less you will pay in total.
It could take between 15 and 20 years to pay off a student loan balance of $ 100,000, or more if you need lower monthly payments. By refinancing your student loan, investing more money in your monthly payments, or taking advantage of programs like loan forgiveness, you may be able to get out of debt in much less time.
If you’re ready to refinance your student loans, Credible lets you compare student loan refinancing rates from various lenders in just a few minutes.