Paying off student loans while you’re still in school is a brilliant move for the money

Money Your first student loan payment is usually not due until six months after you finish college. But why wait? Here are three ways to make prepayments and cut thousands of dollars on your total debt.

You may think student loan debt is as inevitable as death and taxes, but it doesn’t have to be. You can start paying interest, and sometimes even the principal before you even finish school. I certainly didn’t know this when I was in college and didn’t make my first payment until I received my first bill six months after graduation. If I had been just a little more knowledgeable, I wouldn’t have a panic-inducing $ 230 monthly loan on my hands, causing almost unbearable stress and digging into my wallet.

Student loan debt in the United States is now at a maximum of $ 1.5 trillion, with the average monthly payment being around 3 per month. It’s no joke when you’re fresh out of college, desperately waving an English degree, and can’t find a job. As someone who has spent the last few years taking every possible freelance opportunity to keep afloat to pay off hundreds of dollars in loans every month (plus rent and, well, life), I wish I had done my financial research first.

Fortunately, many of you are still enrolled in school and can pay off a huge debt before you get stuck here in the real world with the rest of us. Graduation seems so out of reach when you’re a freshman, said Jubilee Baez, a 2018 graduate of the State University of New York, Morrisville, who says she faces monthly payments of nearly $ 600 per month. You’re not even thinking about it right now … so many college students aren’t prepared to handle that burden by making monthly payments for their loans. They prefer to put off until after graduation and worry about it then.

But if you take a minute to think about the impact of your debt down the line, you’ll be way ahead of the game. Paying as much as possible, as soon as possible, is always a good practice when it comes to repaying student loans, said Elyssa Kirkham of Student Loan Hero.

Of course, this means that you need to know in the first place how much you are borrowing, what the interest rate is, and what the monthly payments will be once you leave school, all of which you can find out by checking with your financial assistance office and by contacting your student service provider.

For many of us, applying for student loans was the very first financial contract we ever signed, and once we signed on that dotted line we told ourselves not to worry about that ever-increasing debt until at least four years after the start of the future. . But there is a much better course of action.

Here are three ways you can deal with student debt before you even graduate:

Deal with those interest payments

In reality, paying off your student loans while in college may seem impossible. After all, if you had the money, you wouldn’t be borrowing in the first place. But just because you can’t afford to repay the full loan amount doesn’t mean you can’t start paying interest right now. And if you have an unsubsidized federal loan (hint: you probably do), that interest begins to accrue the moment the funds are paid.

Paying interest on your loans while you are in school is surprisingly convenient. For example, if you borrowed $ 10,000 in your first year and start paying interest as soon as you receive the funds you should only pay $ 42 per month, assuming the current five percent interest rate. Not only will you have written off interest payments, but you will also avoid paying interest on any interest payments you deferred while you were in school, something that is known as interest compounding. By using the same loan amount of $ 10,000, you get a savings of $ 783. If your loans are closer to the national average of $ 33,000, you’ll save around $ 2,500 overtime.

 And financial aid offices tell you that you don’t need to make a payment for up to six months after graduation – keyword ‘required’. They don’t tell you that you can start making payments now if you want to. If this were known, I’m sure many parents and students would probably have less debt than they are now.

To make interest payments, log into your student loan manager’s website to run the numbers. Not sure who your servicer is? A company like the Great Lakes, MOHELA, Navient, or Nelnet, Lifehacker is likely to report, but you can always check with your financial assistance office to find out for sure.

Even if you have a minimum wage job on campus and can only afford to spend forty dollars a month on interest, it will make a difference you will feel after you finish school.

Return extra money

If your loan package includes extra funds that you don’t need, you can pay the money back. Students may accept, decline, or reduce the number of loans offered, but may not know they may or may not ask enough questions to fully understand, explained Daad Rizk, director of Pennsylvania State University’s Financial Literacy Center. This happens when you

If you return unnecessary funds within 120 days, the loan will be canceled and you will not have to pay any interest or fees on the money. Canceling loans you don’t need is always best, as you won’t be responsible for the fees and interest on those funds. But if 120 has passed, you’re stuck repaying the loan, Kirkham said.

Of course, it’s best to cancel the loans before you even have them if you can. For federal loans, you will typically receive a notice from your school informing you that you have a two-week window to cancel the loan. Be sure to put your request in writing and send it by certified mail, recommends US News & World Report.

Another option is to save money you don’t need (preferably in an interest-bearing account) and use it to pay off the loan after graduation. This is what Baez is doing now. I accepted the whole because I didn’t want to run out short, he said. But at the end of the day, that money wasn’t mine in the first place.

Pay the capital

Do you have a well-paying internship over the summer or have you found a part-time job that leaves you with a few hundred dollars more each month? If so, consider putting that money into your student loan principal now as this will reduce your total debt once you graduate. Any payment made that exceeds the current amount of interest due is applied to the principal, resulting in a principal reduction.

The great thing about paying even a small portion of the principal before you finish school is that there is no penalty for irregular payments since you are still in the grace period. Also, you will reduce the amount of interest you will have to pay after school because you paid part of the principal. So if you have 0 more, pay it, or if a relative gives you some funds you don’t need right away, consider putting those towards your loans too. Making extra payments could save you thousands of dollars in interest that you would otherwise have paid, Kirkham added.

The key to making this work is to make sure you still have enough money left over to cover any other bills like food, cell phone, or gas. Keep your expenses in check and consider getting a part-time job while in school to make ends meet, said Student Loan Hero Rebecca Safier. While you may have to make some sacrifices as a student, you will be happy when you graduate without a lot of student debt to repay.

Your future self will thank you.

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