The Federal Reserve reports that 69 percent of college students use student loans to pay for school. While student loans may be unavoidable, savvy students are making smart financial choices to tackle debt while they’re still in school.
Why Speed Matters When Paying Off Loans
One of the biggest problems with student debt is compounding interest. Once your interest starts accruing, the total amount you owe can escalate quickly.
When looking at student loan payments during the first year after graduation, we considered what would happen when making minimum payments on a $50,000 loan with 5 percent APY. You’d end up paying an additional $30,000 in interest on top of the principle you borrowed. That’s a significant increase.
The faster you’re able to pay your student loans, the less interest you accumulate. This reduces the total amount you owe.
For example, on the same $50,000 loan with 5 percent APY, a minimum monthly payment of $330 means you’ll break even in 20 years. By increasing loan payments to $730 per month, you’ll break even in just seven years. You’ll save about $20,000 in interest.
Everyone’s financial situation is different, but with these six steps, you can work toward paying off your student loans while you’re still in college.
Step 1: Avoiding Interest
Before even taking on student debt, do a thorough comparison of loan offers and their repayment plans.
If you qualify for a subsidized loan through the Department of Education, you won’t accrue any interest while you’re in school. These federal loans are the best option for minimizing your interest. Unsubsidized loans and private loans typically don’t have a grace period, and interest starts accruing while you’re still attending college.
No matter what type of loan you have, by starting to make payments while in college you’ll reduce your total debt. If you have multiple student loans, work on paying off the ones with the highest interest rate first. These are typically your private student loans.
Step 2: Hack Your Current Expenses
Start looking at your expenses by getting smart about your tuition costs.
After reviewing your financial aid offers, you can calculate which college has the lowest total cost of attendance. You can then use national college rankings to determine which school provides the best academic quality for the lowest price.
By choosing a school that has a good value education, you could save thousands of dollars annually. By reducing your debt burden, you could be free to jump-start your career after graduation.
The other type of expense to look at is the cost of living. The College Board estimates that during a 12-month time frame, student expenses are an average of $17,550 if on a low budget and $26,200 if on a moderate budget.
By reducing your living expenses, you’ll be able to borrow less money or have the cash to make extra payments on your loans. Options to reduce your living expenses can include having an extra roommate, carpooling to campus, brown-bagging your lunch, and cutting back on miscellaneous purchases.
Step 3: Monetize Things You’re Already Doing
The best way to pay off your student loans early is to make money off of things you’re already doing.
For example, if you’re already a sports fan who’s attending games, figure out how you can get paid for it. If you’re already driving to the airport, see if you can pick up a couple of rides who are also going in the same direction. Consider using apps like Swagbucks, which pays you for your internet surfing, and users commonly earn about $30 in gift cards with no effort. You can also get paid to participate in Nielsen studies, and all you have to do is install the software on your device.
There’s also a unique opportunity that’s only available to students. OneClass has been paying students to attend class. A student attending UC Davis told Reader’s Digest that she made $1,500 in less than a year. All you have to do is upload clear and thorough notes within 24 hours of each class.
As an official OneClass Note Taker, you can turn your class attendance into a way to earn money. With average earnings of $470 per course, your potential income can add up fast. Plus, many notetakers say when they are paid to attend class, their grades improve too.
Step 4: Fundraise
Your friends and family may also want to help you pay off your student loans. Rather than birthday or holiday gifts, your relatives may be willing to pitch in to help you make another student loan payment.
You could also ask people to pitch in based on how well you do in your classes. Similar to how a runner would raise money for each mile they walk, you could ask people to kick in $50 for each time you make the Dean’s List.
Step 5: Get a Job
In order to pay off your student loans, you’ll probably also need a job.
However, college jobs should be flexible enough to work with your class schedule. It also needs to be a job that won’t mentally compete with your schoolwork. Remember that if your grades drop and you have to leave school, you’ll have student loan debt without the diploma.
In the 10 best ways to make money in college, we’ve rounded up some of our favorite student jobs.
Step 6: Think Like an Entrepreneur
If you’ve got a mind for business, you may also be able to create a strategy where you can earn money from your fellow students to pay off your student loans.
Since you’re a student, you can identify on-campus business opportunities. For example, you could run a Friday-night shuttle service between campus and downtown, you could sell a product or service, run an email address server, or you could build an app.
See what OneClass study documents are available for your school.Image attribution: Pixel-Shot – stock.adobe.com