College degrees are becoming more costly for borrowers. Outstanding federal student loan debt has grown to $1.72 trillion, an average of nearly $40,500 for each borrower, up about $1,500 from last year.
According to the latest analysis from WalletHub, the cost of repaying federal student loan debt is becoming a bigger hurdle for Americans: Assuming a fixed interest rate of 6.52%, the rate for federal undergraduate loans, a monthly payment of around $302 would be required to pay off the debt over 20 years.
While WalletHub found monthly student loan costs vary widely from state to state, here in Illinois, which ranks eighth nationally for the highest student loan payments, the median monthly payment is $238, up more than 5% since last year.
With this in mind, and with October being National Financial Planning Month, it’s a good time to study up on smart money management moves. The Illinois CPA Society (ICPAS) suggests borrowers consider these tips to help pay down student loan debt and begin solidifying long-term financial security:
- Apply for an income-driven repayment plan. Federal Student Aid’s income-driven repayment plans and loan consolidation programs set your monthly student loan payment at an amount that’s intended to be affordable based on your income and family size or number of dependents. Qualifying individuals may be able to lower their monthly payments.
- Make your payments—and savings—automatic. If you’re working and have your paycheck directly deposited, you could elect to have portions of your paycheck automatically diverted toward loan repayments and your savings and retirement accounts. This is a great budgeting practice that’ll help you repay your loans on time (and faster if you elect to pay more than the minimum payment due) while also avoiding late fees and setting aside money for your future without having to think about it.
- Assess your student loan interest rates. Take note of all your student loans and their current interest rates. Depending on when your loans were originated, sometimes consolidating and/or refinancing eligible loans can lower your overall interest rate and make meeting the repayment obligations easier. However, this may not be available or advisable to those already on income-driven repayment plans or those progressing toward loan forgiveness. WalletHub points out that borrowers with good or excellent credit may be able to transfer some student loan debt to a credit card with a 0% introductory interest rate, stopping interest from accruing. However, this tactic requires being able to pay off the credit card balance before the introductory rate expires. Whenever refinancing or consolidation aren’t good strategic choices, prioritizing paying down the highest interest rate loans first often makes good financial sense.
- Redirect your discretionary spending. Cutting back on unnecessary spending is a smart way to save. Although it takes discipline, reining in discretionary spending whenever possible affords you more money to allocate toward paying down high-interest debt and boosting your long-term savings.
- Speak with your employer about your student loans. More employers are offering student loan assistance to employees. Check with your employer to see if a tuition reimbursement or assistance program is available to you.
These are just some of the ways to pay off your student loans more efficiently, ensuring you’re getting the most out of each payment. Whether you’re a current college student, recent grad, or seasoned professional bogged down by student loan debt, creating the right payment plan can help you get ahead of schedule and lessen the financial burden on your life. After all, you made the decision to invest in your professional future—make sure it pays dividends.
