Reduce Student Loan Debt by Paying Interest Early

As the Student Loan Ranger’s various social media profiles fill up with congratulations for this year’s college graduates, we thought it would be a good time to offer a math lesson.

While most federal student loans for the Class of 2016 won’t be due for payment until this fall because of the grace period, we’d like to explain why it might be a good idea to make some payments now. Making payments on your student loans now can be a great financial investment in the long term.

Most federal Stafford and both parent and graduate PLUS loansare unsubsidized. This means that interest has been accruing on these amounts from the day they were disbursed.

While you aren’t required to pay this accrued interest now, these amounts will be capitalized once the loan enters repayment. This means that the accrued interest will be added to the principal balance and the interest will be calculated based on this new, higher balance.

Capitalization can happen at other times as well – generally when you go from a nonrepayment status to a repayment status, when you default or when you change repayment plans or are late renewing your payment plan. These amounts can add up and make your loan a lot more expensive in the long run.

For example, say you graduated with $30,000 in unsubsidized federal student loan debt after four years of school. Even though your loans likely have different interest rates, for the sake of simplicity let’s say they are all at 5 percent. Again for simplicity, we’ll say you received $5,000 on Jan. 1 of both 2013 and 2014 and $10,000 on Jan. 1 of both 2015 and 2016 (in reality, you likely got half of each loan in the fall and half in the spring – the interest on those amounts begins to accrue when they are first disbursed).

So on Nov. 1, 2016, the 2013 loan would have accrued $958.25 in interest over 1,400 days; the 2014 loan, $708.42 over 1,035 days; the 2015 loan, $917.18 over 670 days; and the 2016 loan would have accrued $417.52 in interest over 305 days. Remember, unless and until it capitalizes, interest accrues that doesn’t affect the principal until you make a payment. We picked Nov. 1, as that will be close to the time the grace period will end and any outstanding interest will capitalize.

In this example, if you pay that $3,001.37 total interest before it capitalizes, you’ll be starting out repayment with a balance of around $30,000. If you don’t, you’ll be starting repayment with a balance of $33,001.27.

Over 10 years, a $30,000 loan will have a monthly payment of $318, and you’ll pay a total of $38,184. A $33,001.27 loan, however, would have a monthly payment of $350, for a total of $42,003 repaid.

That’s about $4,000 or upward of 30 percent more in interest paid over the life of the loan. Would you pay 30 percent more for a car, cellphone or a hamburger if you didn’t have to? Probably not.

The best case scenario is that you’ve been paying this interest as it’s accruing, but if not, you can prevent it from capitalizing by paying all of it before your grace period ends. Even if you can’t pay it all, every little bit can make a difference in the total amount you pay on your student loans.

You won’t get a bill for this interest, but you can contact your loan holder for instructions on how to submit a payment. All payments on federal student loans are always applied first to any outstanding fees – if you are in the grace period you won’t have any of those – then accrued interest to date, then the principal. These payment application rules are set in federal regulation so they will be the same regardless of who is servicing your loan.


This year’s college graduates face highest student loan debt ever

Once the elation of walking across the stage to pick up their hard-earned diplomas subsides for this year’s estimated 3.7 million college graduates, many of them will be left with the daunting task of paying off some of the highest student loan debt in history.

An analysis by Mark Kantrowitz, a higher-education expert and publisher of scholarship resource, reveals that borrowers in the class of 2016 will owe an average of $37,172, which would break last year’s record of just over $35,000. And although data from the National Association of Colleges and Employers suggests that the average graduate will find a job with a decent starting salary — more than $50,000 — student loan payments can resemble mortgages or car payments for years to come.

“Our country has come to rely on student loans so much more than people outside the education field realize,” says Lauren Asher, president of the Institute for College Access and Success, a nonprofit that analyzes student debt annually. “This has changed the way Americans are asked to pay for college. There’s been a shift away from state funding and toward putting more of the burden on individuals and families. Federal grants and state grant aid have not kept pace.”

The issue of student loan debt — and the costs of higher education in general — has been a key topic in this year’s presidential primary campaign, fueling Democratic candidate Bernie Sanders’ rise in popularity, especially among younger Americans who are likely to be dealing with loan repayments in the next several years. Sanders has suggested billions of dollars in federal subsidies and state spending regulations that he says would help move the country toward the goal of every student being able to attend college without paying tuition.

The average student loan balance has risen by about 78 percent since 2006, according to Kantrowitz. In 2014, the last year for which TICAS has compiled data, Delaware had the highest average student loan balance, at $33,808; Utah had the lowest figure, $18,921 (see a state-by-state breakdown). Perhaps even more startling, nearly seven in 10 graduates this year have financed at least part of their education with student loans; in 1993, that number was fewer than half.

A key factor in the steadily rising numbers, Asher says, is that states are covering fewer costs associated with getting an education. Many people wrongly assume that tuition and fees cover more expenses than they actually do. Frequently, the cost of books, housing, transportation and other necessities are not factored in.

“Student loans have become a necessity for more and more students to get through school,” Asher says, “and what’s not being talked about is the lowest income students are the most likely to have loans in default.”

Often, lower-income students choose to quit school, forfeiting the potential earnings boost that comes with a college degree. These dropouts make up an inordinate share of those who default on loans.

“We don’t have a student loan problem so much as we have a graduation problem,” Kantrowitz told the Wall Street Journal. “If current trends continue, we may be at a crisis point two decades from now.”

It should come as no surprise, then, that one of the first suggestions Asher offers for bringing down some of the staggering numbers associated with student loan debt is straightforward: Finish school.

“It can be daunting for sure, but not graduating and having debt can be riskier,” she says. “Taking student loans in any amount is a serious commitment, and it’s important for students and their families to consider their options.”

More information alone, however, will not solve the problem, Asher says. Besides making it easier for borrowers to manage and repay their loans, she says more rigorous requirements for colleges to receive student aid are needed. California, for example, recently passed a law requiring its four-year colleges to report their graduates’ debt annually, which she says could help guide decisions on student aid; other states are considering similar measures.

“There’s still a lot we need to learn about what’s really happening for borrowers in all stages of the process,” Asher said. “It’s still very opaque, and it’s very important to recognize that federal student loans are a very different kind of financial product.”

Nevertheless, many experts remain convinced that a college education is a sound investment.

“College education benefits families, our economy and society as a whole,” Asher says. “What’s important to know is that while student debt has risen quite a lot over the last generation, you have to look behind the numbers and know that college remains one of the best investments you can make in your future.”


How to Pay Off Student Loans After Graduation: 9 Helpful Tips

Graduation day and commencement are just around the corner. If you’re a new graduate, or about to be one, donning a cap and gown signifies the end of that challenging and memorable four-year journey called college.

After graduation, you might be starting your first full-time job, renting an apartment in a new city and maybe even buying a new vehicle. Either way, you’re going to have a new monthly bill — your student loan payment. In 2015, the average recent college graduate had $35,000 in student loan debt and the 2016 projection is only going up at $37,000, according to Mark Kantrowitz publisher of

The prospect of paying off student loan debts can seem overwhelming. However, student loans can be paid off quickly and without getting into further debt in the process. Here are some tips from student loan experts on how to make headway right away on that monthly student debt loan payment.

1. Ignore the Grace Period

Many loans have a grace period, which is a short period of time in which no loan payments are required. A few factors play into how long the grace period is on a loan, including what type of loan it is and if the student is active military or consolidating loans. As a general idea though, direct subsidized loans have a grace period of six months.

Some students might think of their loan grace period as a way to catch a break and get their finances in order following graduation. However, this time can be used to dive into loan repayment immediately and get ahead of your debt. “Interest accrues during the grace period, so it is better if you can start paying back the loan earlier,” said Mark Kantrowitz of, a free web site that connects students with colleges and scholarships.

Using the $35,000 student loan average, and a modest interest rate of 4 percent for 10 years: If a student decides to begin paying on the loan immediately and cut six months off the term of their loan, the total amount of interest paid on the loan will be reduced by roughly $400.

2. Double Up on Student Loan Payments

There is no rule against paying more than the minimum balance due on student loans. Take advantage of this opportunity to pay down loans faster. “Double up your payments if and when you can or pay more than your minimum payment,” said Leslie Tayne of Tayne Law Group. “In order to pay more toward the principal of your loan and not just the interest, you should consider doubling up on your payments so you can pay off your loans quicker.”

You want to make the second payment as close as you can to your monthly payment because it will be the lowest interest accrued, Tayne said. “If your loan is $300 every month to be paid on the third then you might want to consider paying an additional $100 on the fourth of the month, if you’re able to,” she said. “In making your additional payment the following day, there will be only one day of interest accrued.”

Additionally, if you make bi-weekly payments every month, you will see begin to see your loan amount decreasing a lot quicker, she adds. “For example, depending on how much money you are putting toward your bi-weekly payment, you could cut your student loan repayment term in half by making bi-weekly payments,” Tayne said.

3. Pay Off Loans With the Highest Interest Rate First

If you have multiple student loans, there are a few different ways to approach repayment. Some graduates opt to pay the smallest loan off first — this is the debt snowball method. However, paying off the loan with the highest interest rate first might save a little more money in the long-term. This method is called the avalanche method.

“If you can afford to make extra payments on your student loans, target them at the loan with the highest interest rate. This will save you the most money,” Kantrowitz said. “[S]pecify that this is an extra payment that should be applied to the loan with the highest interest rate and not as an early payment of the next installment. You want it treated as an extra payment in addition to the regular installments, not instead of them.”

For example, if you have a $10,000 loan at 3 percent interest with a 10-year term, and you only make minimum payments, you will pay about $1,500 in interest. Alternatively, a $5,000 loan at a higher 15 percent interest with a 10-year term will cause you to pay almost $4,700 in interest.

Related: My Wife Kept Her $90,000 Student Loan Debt a Secret — Here’s How We Survived

4. Deduct Your Student Loan Interest From Your Taxes

Each year you pay off your student loans, you’re paying a lot of money on student loan interest. So each April, make sure you take advantage of the Student Loan Interest Deduction on your federal tax return.

“The student loan interest deduction lets borrowers deduct up to $2,500 a year in interest on federal and private student loans, reducing your tax liability by a few hundred dollars,” Kantrowitz said. “The deduction is taken as an above-the-line exclusion from income, so you can take it even if you don’t itemize.”

5. Consolidate Loans If Conditions Are Right

Consolidating your student loans could be beneficial — but only if the conditions are right. “Consolidation of student loan debt is a good idea if and when you can find a loan that has a fixed and lower interest rate than the one you have now,” Tayne said. “You should try consolidating your loans if your interest rates are variables. You might also want to consider this option if you need a lower monthly payment.”

However, there are also some circumstances in which consolidation is not the best idea. “If you are consolidating your federal loan into a private loan, you really should let the federal loans ride out and pay off as much as you can, when you can,” Tayne said. “[Consolidating federal loans] can end up with you losing money in the long haul, because it will most likely turn from a fixed interest rate to a lower interest rate that is not fixed, which is always risky.”

6. Sign Up for Automatic Debit

Always sign up for an automatic debit of your student loan payments, so you don’t miss a payment. “[Automatic debit is when] monthly payments are automatically transferred from your bank account to the lender,” Kantrowitz said. “Not only will you be less likely to be late with a payment, but many lenders offer slight interest rate reductions as an incentive.” This interest rate reduction can be as much as 0.25 percent on federal loans; and from 0.25 to 0.50 percent on private student loans, said Kantrowitz.

Using the $35,000 student loan example: If automatic debit is used during the entire life of a 10-year loan, reducing the interest rate from 4 percent to 3.75 percent, you could save $500 over the life of the loan in interest payments.

7. Consider Prepaying Loans With Extra Cash

If you are close to graduating, but still have a semester or so left, you can get ahead even easier. For example, if you took out a loan to pay for tuition at the beginning of the school year, but are working at the same time or otherwise have a means to begin making small payments on the loan before graduation.

If you prepay your loan by paying it off as you go, this will reduce your total interest paid. And since the balance of the loan will be reduced as well, more of your monthly payment will go toward the actual balance instead of mostly toward the interest.

8. Ask Your Employer to Help

Roughly 3 percent of employers have programs in place to help aid recent graduates with paying back student loans, according to the Society for Human Resource Management. For example, PricewaterhouseCoopers (PwC) offers up to $1,200 per year for up to six years to help their employees pay off student loans.

“Ask your employer to provide employer-paid student loan repayment assistance as an employee benefit,” Kantrowitz said. “Many large employers, including PwC and Fidelity, have started offering such benefits, or are considering adding such a benefit.”

Related: Starbucks to Invest $250 Million to Give Employees a Free College Education

9. Pick the Best Student Loan Repayment Plan

Be wise when picking a plan to pay back your student loans. “Every student loan borrower will have the ability to select from several repayment plan options,” said Paul F. Goebel, director of the University of North Texas Student Money Management Center. “Pick a plan that meets your financial situation immediately following graduation. A plan’s repayment obligation should be manageable and not create a financial hardship.”

You will even have the opportunity to change plans if needed. “As your discretionary income increases you might choose a different plan that allows you to pay off your loan obligation faster,” Goebel said. “Paying your student loans back quicker will also help you save money from the impact of accruing interest.”

Some payment plan options are “pay as you earn” and based on the amount of income a student has following graduation. However, this option won’t typically save the most money. You could pay $15,000 more over the course of a loan if you take this route, than with other re-payment options, according to U.S. News World & Report.

Paying off your student loans after graduation doesn’t have to be a headache. By making payments early and often, and by strategically paying loans down according to their interest rates, it’s possible to pay student loans early. Just follow these expert tips and you’ll be well on your way to being free of student loan debt.


Most Student Loan Interest Rates Fall To Ten-Year Lows

Wednesday’s release of Treasury yields has determined student loan interest rates for the coming year. Rates for the 2016-17 academic year have fallen by just over half a percentage point across the board relative to this year. Three out of the four loan categories are at their cheapest for students since fixed rates were introduced in 2006.

For undergraduate Stafford loans (subsidized and unsubsidized), the most common type of student loan, rates are 3.76%. Subsidized Stafford loans last reached a level this low in the 2012-13 academic year, according to theDepartment of Education . For unsubsidized undergraduate loans, rates have not been this low since fixed loan rates were introduced ten years ago. The same is true for unsubsidized graduate loans and PLUS loans, which now have interest rates of 5.31% and 6.31%, respectively.

As the Fed refuses to budge, student loan interest rates are going down, down, down.

As the Fed refuses to budge, student loan interest rates are going down, down, down.

Since 2013, interest rates on student loans have been directly based on the yields of 10-year U.S. Treasury bonds. Prior to 2013, the rates were essentially set by the whims of Congress. Now, the most recent Treasury auction prior to June 1 of each year determines rates for the following year. Undergraduate Stafford loans see rates 2.05 percentage points higher than the Treasury yield, while graduate Stafford loans see rates 3.6 percentage points higher and PLUS loans 4.6 percentage points higher. Continuing a recent trend, Treasury yields fell to just 1.71% at the most recent auction.

 Students may be able to enjoy lower interest rates for some time. The Feddid not raise its benchmark interest rate at its most recent meeting. While Treasury rates are not directly linked to Fed decisions, they eventually follow suit when the Fed decides to raise rates. According to the Economist, the Fed was originally expected to raise rates four times in 2016—now it may not happen even once.

Despite the record lows, Democratic presidential candidates Hillary Clinton andBernie Sanders have called for cutting interest rates on student loans, and Republican Donald Trump has implied that rates are too high. (Though with Trump, can anyone really tell?)

So, are rates too high or too low? According to estimates released by the Congressional Budget Office, taxpayers are set to lose $170 billion on the federal student loan program over the next ten years. This undercuts politicians’ claimsthat the federal government is profiting off student loans, and therefore interest rates must go down. Given losses of such magnitude, interest rates are almost certainly too low.

But aren’t taxpayer losses justified, since lower interest rates help distressed borrowers? Not really. As I wrote last week, those former students with the highest default rates have the lowest average student loan balances. This is because students at risk of default attend cheaper, poorer-quality institutions and frequently do not finish, and thus end up with lower balances. Cutting student loan interest rates is a highly regressive way to help borrowers.Benefits will flow to those who have borrowed the most—graduates of prestigious law schools and MBA programs who will likely have few problems paying down their debt.

Before fiddling with interest rates, it is worth considering the goals of federal involvement in higher education. If student loans (along with Pell Grants and various tax incentives) are aimed at reducing the financial burden on poor and middle-class households, then they have largely failed, as research finds that federal student aid has been the primary (if not the only) driver of outsize increases in college tuition.

By contrast, if the federal government seeks to promote access to higher education for the sake of its broader societal benefits, then regressive cuts to student loan interest rates are surely not the way to go. That will require more sophisticated reforms to ensure that high schools are adequately preparing students for college (or alternative paths) and that colleges are not simply siphoning up students’ tuition dollars without ensuring they graduate and land good jobs. As is the case in so much of public policy, throwing money at the problem is a woefully inadequate solution.


Student loan borrowers in 74 U.S. cities have student loan debt burdens greater than their annual income

WalletHub recently found that student loan borrowers in many cities have a debt burden that outpaces their yearly income.

Student loan borrowers in 74 U.S. cities have student loan debt burdens greater than their annual income, according to new research from WalletHub. Analysts compared the average student loan balances and median incomes of residents ages 25 to 44 in 2,513 cities to determine those that have the highest burden, according to a news release. Approximately 3 percent of the cities studied had residents with a debt-to-income ratio greater than 1:1.

For example, in Voorhees, N.J., the average student debt is $46,423, and the median income is $26,711—a 174 percent debt-to-income ratio. The city with the next highest ratio, Opa-locka, Fla., has an average student debt of $28,352 while the median income is $16,669. The ratio of income to student debt among adults there is 170 percent.

Rounding out the top 10 list of cities with the highest debt-to-income ratios are:

  • College Park, Ga.

Average student debt: $42,507/Median income: $25,329/Ratio: 168 percent

  • Bastrop, La.

Average student debt: $29,942/Median income: $18,558/Ratio: 161 percent

  • Selma, Ala.

Average student debt: $28,035/Median income: $17,610/Ratio: 159 percent

  • East St. Louis, Ill.

Average student debt: $26,492/Median income: $16,843/Ratio: 157 percent

  • Natchez, Miss.

Average student debt: $38,744/Median income: $25,428/Ratio: 152 percent

  • Palatka, Fla.

Average student debt: $28,426/Median income: $19,130/ Ratio: 149 percent

  • Darlington, S.C.

Average student debt: $29,634/Median income: $20,372/ Ratio: 145 percent

  • Loma Linda, Calif.

Average student debt: $83,478/ Median income: $57,685/ Ratio: 145 percent

WalletHub also reports, based on research from Citizens Bank, that college graduates spend 18 percent of their salaries on student loans, and 60 percent of those borrowers will continue to do so into their 40s. But according to WalletHub’s analysis, only five cities in the U.S. have a debt-to-income ratio of 18 percent or less: Saratoga, Calif.; Southlaxe, Texas; Garden City, N.Y.; Darien, Conn.; and Bronxville, N.Y.

As of the first quarter this year, according to WalletHub and the Department of Education, approximately 9.6 million of the estimated 22 million consumers with student debt were delinquent on payments or stopped payments on their loans.

However, in March, Ed released data showing student loan defaults and delinquencies on federal student loan debt are declining, especially as more borrowers enroll in different income-driven repayment plan options, ACA International previously reported.

The default rate for borrowers has declined from 2.5 percent in the first quarter of 2015 to 2.3 percent in the first quarter of this year, according to Ed. Deferments by borrowers experiencing unemployment or financial hardship also declined from 2014 to 2015.


4 Tips to Help You Tackle Student Loan Debt

Higher education is expensive — and prices continue to rise. Because of this climbing tuition and inadequate parent savings, student loan debt now plagues 40 million Americans. Your student loans were an investment in your education and career, but now you need to start making your payments. It’s important to not get overwhelmed, intimidated or discouraged in your journey to becoming free from student debt. Check out these methods to help you repay these student loans faster or more easily for your personal situation.

1. Personalize Your Plan

When your federal loans are due, your payments will automatically be based on the standard 10-year repayment plan. If that makes monthly payments or interest too high for you, you may want to change the repayment plan so it better fits your situation. You can even get income-based repayment so that you are not paying too high a percentage of your earnings toward debt.

Private loans don’t have all the same options, but some lenders will offer some type of forbearance or allow you to make interest-only payments for a period of time. It’s a good idea to try to create a three- to five-year plan for paring down college debt and sticking to it so you can make a dent before other big life expenses. Keep in mind that forbearance comes with downsides too — just because your payments are paused, doesn’t mean that the debt isn’t accruing interest.

2. Automate Payments

Making your payments automatic takes any decision-making and room for error out of the question. It helps you avoid late payments because you do not have to be reminded to pay. The money is simply deducted from your account monthly for the payment amount you set. You can set up a reminder ahead of time to ensure you have enough money in your checking account so you are not charged for insufficient funds. Some debt holders will even shave a small portion of interest off for those using automatic payments since it lowers the chance of missed or late payments for the lender. This would result in a reduction in the total amount you have to pay. A missed or late payment damages your credit score, which in turn could mean you pay higher interest rates if you need credit after college.
3. Consolidate or Reduce Your Loan

A consolidation loan combines multiple loans into a single monthly payment with one fixed interest rate. This can simplify the process and sometimes get you lower interest payments, but it’s generally not a good idea to consolidate federal loans into a private student loan or you will lose out on some repayment options and borrower benefits.

You can also reduce your student loan debt through public service by working for the Peace Corps, Americorps, government organizations or certain nonprofits for 10 years and making 120 on-time monthly payments through Public Service Loan Forgiveness.

4. Lump Sum or Extra Payments

If you find your checking and savings accounts looking extra healthy or get a sudden financial boost, you pay want to use that money to accelerate paying off your student loans. You can make a lump-sum payment that makes a big dent in your debt balance at one time or make extra payments each year to help you reduce the amount of money you pay in interest and speed up your loan payoff time frame. These payments will likely still qualify for a tax deduction, but can reduce your deduction eligibility going forward since you will have less years with the loan.

The most important steps are making peace with your debt, creating a budget that accounts for student loan repayment, and sticking to it. The key is finding a method that works with your life and financial situation. You can even pick up a side job to earn some extra cash to put all toward your loans. The better your plan matches your needs and abilities, the less trouble you will likely have repaying what you owe.


17 Tips For Quickly Paying Down Student Loans, From Someone Who Paid Off $74,000 In 2 Years

When Matthew Burr finished his master’s degree in 2011, he figured he owed about $50,000.

But he was in for a surprise. “The number was almost $15,000 more than I’d previously estimated,” he remembers.

Between the $65,000 from 18 months working on a master’s degree in Human Resources and Industrial Relations from the University of Illinois School of Labor and Employment Relations, and about $9,000 remaining from his undergraduate debt, he was nearly $74,000 in the red.

“I wasn’t going to be one of those statistics where the loan balloons to $150,000 with interest,” Burr recalls. “Right out of grad school, I got a job as a human resources manager at a paper mill with a starting salary of about $80,000, plus a sign on bonus and relocation. I didn’t even wait the six-month grace period to start paying off my loans.”

In 2012, he managed to repay more than $42,000. The next year he paid off nearly $27,000, and finally, this year, he paid back the remaining $5,000.

In two years, 31-year-old Burr was completely free of student loan debt. “I paid a grand total of $4,913.69 in interest in 23 months, saving thousands of dollars over the next 25 years,” he says.

How did he do it? Below, Burr shares 17 tips that helped him pay off his student loans.

1. Don’t ignore the debt. “Just because you don’t see it doesn’t mean it will magically be repaid for you,” cautions Burr.

2. Read the fine print and know the repayment guidelines. “I read through my grad school loans after the fact and owed nearly $15,000 more than I expected,” he recalls. “You need to know when your payments are due, how much the minimum payment is, and how much you plan to pay each month before you sign.”

3. Be prepared to sacrifice in order to meet your goals. Burr recommends setting a timeline of how much you’ll pay, and then doing whatever you must to stick to it. “I own a TV that’s 15 years old,” he says. “I don’t have an XBox or Playstation, BluRay DVDs, or VIP cable. I don’t have the $200 a month cell phone plan. I didn’t go without by any means, but I set my goal and knew I needed to make the sacrifice for a few years.”

4. Keep your contact information current. “The first thing I did when I graduated was go online and change my address from student housing to my new home on my credit cards, banking, and student loans,” he says. “Most things will probably be emailed to you, but you don’t want to miss something in the mail when your college email is turned off.”

5. Make more than minimum payments every chance you get. “I was paying almost four times the minimum payment because it was important to me to achieve the goal that I set,” remembers Burr. “I looked at the student loan site every day and watched the interest accrue, and the more I knocked the base down, the less I would pay in interest.”

6. Start paying immediately. If you can, don’t wait for the six-month grace period to end to make payments, advises Burr. “As soon as I got my first check, I made a payment. You’ll pay less interest if you start making payments in a hurry, and it gets you into a routine. If you’re disciplined up front, you’ll be far ahead of everybody else.”

7. Pay more than once per month if possible. “The more often you pay, the more you’ll be able to knock your interest down,” Burr explains. “I tried to keep it at zero as much as I could.” And while it’s advisable to check with your lender to make sure you aren’t tripped up by any limits on payment frequency, Burr says that even though he sometimes paid six or seven times a month, he never ran into any limits.

8. Live well below your means. “When I got out of grad school, I basically doubled my salary. I’d never had that kind of income before, but I put the extra towards my loans,” he says. “Debt is stress, and when you don’t have it, it’s one less thing you have to worry about.”

9. Set a strict cash budget. “Know where you’re spending all of your money,” advises Burr. “I limited myself to $40 a week cash, which was a pretty strict budget.” And for that matter, he says, ask for help setting up your budget if you’ve never done it before. “I came out of school with a business degree so I was familiar with budgets, but I know many people aren’t,” says Burr.

10. Don’t carry balances on credit cards. “The interest on credit cards will get you, too,” says Burr. “You need all your money to spend on student loans, so you shouldn’t be spending on credit card interest.”

11. Don’t buy a new car if you don’t need one. “Waiting two or three years to purchase a new car will allow you to make additional payments on student loans,” Burr says. “I bought my car in late 2007 and paid it off before I even went to grad school.”

12. Look for cheaper places to live while you are paying down debt. “Cost of living is an expense to consider,” says Burr, who lives outside of Milwaukee, Wisconsin. “I didn’t take a job in New York, Chicago, or Los Angeles. Should you?”

13. Learn to negotiate. “This could mean salaries, sign on bonuses, relocation, or lower interest rates,” Burr says. “I negotiated my salary and sign on bonus and bumped them up a couple thousand dollars, then was able to put my bonus and relocation straight to my loans.”

14. Track your payments closely. Burr, who found that watching his declining balance was enough motivation to keep up his payments, recommends using a third-party site to manage payments (like, or getting familiar with your lender’s website.

15. Take advantage of discounts. There are potential discounts for repayment, automatic monthly deductions, and loan consolidation. “Simply signing up for automatic deductions — saying they could take the money straight from my bank account once a month — got me a discount of 0.25%,” Burr remembers.

16. Pay off the highest-interest-rate loans first. “You’re paying the most on those loans, so you’ll want to get those paid off,” he says. “That goes for anything, like credit cards or car loans.”

17. Set achievable milestones, and reward yourself as you reach them. “I had six loans, so I would focus on paying the one with the highest interest down first and know it was finished,” Burr says. While he admits that he didn’t really reward himself — “seeing the balance at zero was enough reward for me” — it’s a good idea to celebrate the milestone to keep your motivation high.


College debt is causing students to push back retirement savings

If you’re the parent of a soon-to-be-college student — or a soon-to-be-student yourself — you might want to sit down for this.

According to research from Edvisors, the average indebted graduate will walk off campus having to repay a little more than $35,000.

The repercussions can be wide — and lasting. Indebted college students are putting off many of life’s major milestones, including buying homes, getting married and having kids because of this financial burden. And now, new research from Morningstar’s HelloWallet shows, that hefty loan bill seems to postpone saving for retirement as well.

After looking at its user data and the Federal Reserve’s Survey of Consumer Finances (and controlling for age and income), HelloWallet found higher levels of student loan debt to be associated with lower levels of retirement savings. More specifically, each additional dollar of student loan debt is associated with a decrease in retirement savings of 17 cents, according to the HelloWallet data. Use the Survey of Consumer finances data and that decrease becomes 35 cents.

“Common wisdom is that all debt is bad and you should focus on repaying debt as fast as you can, but there can be a very real cost to that,” says Jake Spiegel, a HelloWallet researcher. Is there a better way to approach this situation?

Saving for retirement is mandatory

In the ongoing battle between saving for retirement and paying down student debt, the end result is that one doesn’t trump the other. Don’t approach repaying your loans as the sort of financial endeavor you need to go all in on. It’s okay to stick to the schedule you’ve been given from your lender or go on an income-based repayment plan in order to make room for retirement as well.

The goal needs to be, eventually, putting away 15 percent for retirement (including matching dollars form your employer). If you can’t get there today, that’s okay. Save what you can and try to bump up your contributions 2 percent a year until you’re hitting the appropriate levels.

Matt Reiner, CEO and co-founder of Wela Strategies, a fee-only adviser, says a lot of people are overwhelmed by their student debt — that it’s some kind of quicksand that’s never going to allow for the footing to save for retirement or even retire at all.

“Alleviate that psychological burden, along with doing the fiscally right thing, by saving even just a little for retirement,” says Reiner.

Aim To Max Out

It might sound like a good idea to put any extra money towards your debt, but “It’s not advantageous in any circumstance to pay off student loan debt ahead of schedule,” says Spiegel, especially if there’s an employer-sponsored retirement plan available. If your employer offers one — if anything — make sure you’re contributing enough to get your employer’s match. (This year, workers under 50 can contribute a maximum of $18,000 to their 401(k)s, and older workers can contribute as much as $24,000.)

And if you can, try raising your contribution by $100 a month. It’ll cost you $30,000 over the next 25 years, but it will amount to nearly $100,000 more in your nest egg (assuming an 8 percent annual return). If you don’t have a 401(k) or similar account available, look at an IRA, Roth IRA, or the myRA — or My Retirement Account — a starter retirement account developed by the U.S. Treasury Department.

Refinance To Save More

If you haven’t looked into whether you can refinance your student loans — and according to research from Citizen’s Bank, more than half of eligible grads have not — then it might be worth doing, adds Reiner. According to SoFi, a marketplace lender that provides student loan refinancing, its customers save an average $14,000 by refinancing their loans.

First, understand what types of loans you have and what the interest rates are. You can look up your federal loans on the National Student Loan Data System at, and call your private lenders if you need the information from them.

Both banks and non-banks are now in the business of refinancing loans — and you can find rates for as low as 3.5 percent on fixed rate loans. Then, take the difference between your old and new payments and have it automatically contributed to your retirement account.


Student Debt Is About to Set Another Record, But the Picture Isn’t All Bad

This spring’s college seniors will see a good return: higher starting salaries

 About seven in 10 seniors set to graduate this spring borrowed for their educations, with a record-setting average of $37,000 in debt.

This spring’s college seniors are about to set another record for student debt. But they’re also likely to find a job and make a decent starting salary.

About seven in 10 seniors set to graduate this spring borrowed for their educations. Along with their diplomas, they’ll carry an average $37,172 of student debt as they enter the workforce, according to a new analysis by higher-education expert Mark Kantrowitz. Thatbreaks the record set by the 2015 class, which owed just over $35,000, on average.

The figures by Mr. Kantrowitz—publisher of Cappex, a website that connects students to colleges and scholarships—are projections based on federal student-loan data and factors such as tuition inflation. To be sure, other groups have produced different estimates: The latest figure by the nonprofit Institute for College Access & Success shows seniors leaving college with an average 28,950 in debt.

Other research shows the other side of the ledger: Salaries are rising for new college graduates.

Americans who earned a bachelor’s degree last year landed a job with an average starting salary of $50,651, according to the National Association of Colleges and Employers. That was 5% above the average starting salary for 2014 grads.  The figures are based on student surveys conducted at 60 colleges.

The New York Federal Reserve says the median salary for recent college graduates–the point at which half earn above and half earn below—stood at $43,000 in 2015, up from $39,992 the previous year, based on government data.

The unemployment rate for recent college grads as of December was 4.6%. (One important note: The New York Fed defines “recent college graduate” as anyone between 22 and 27 years old who holds a bachelor’s.)

In other words, new college grads have been finding jobs with salaries a decent amount above what they owe in student debt.  Mr. Kantrowitz says that means most graduates’ debt burdens are “manageable.” That is, they should be able to pay them off within 10 years, with money left over to cover all other bills.

So does that mean concerns over student debt are overblown? Not necessarily.

The first thing to understand is that among the 40 million or so Americans who collectively owe $1.2 trillion in student debt, there is great variation. Engineering majors earn far more, on average, than teachers, for example. Those who attend prestigious nonprofit universities fare far better than graduates of nonselective public colleges. Poor black students borrowed more than their white peers, even though they often attend worse schools.

And perhaps most concerning are the millions who borrowed, then dropped out, failing to get the degree that leads to an earnings boost. Dropouts are a disproportionately high share of defaulters, a group that typically owes under $9,000, according to the Education Department.

“We don’t have a student-loan problem so much as a we have a graduation problem,” Mr. Kantrowitz said. “And if current trends continue, we may be in a crisis point in two decades from now.”


Student debt surpassed $1 trillion four years ago today. Here’s why it’s still growing

Student loans have become a $1 trillion problem in the popular imagination. But it wasn’t always this way.

Student debt activists mark April 25, 2012 as the day when total outstanding student loans in the U.S. hit $1 trillion. (Total outstanding student loan debt surpassed $1 trillion in the second quarter of 2012, — which includes April, — according to the Federal Reserve).

On that day, college students and others took to the streets to call attention to the ways in which student debt was affecting their ability to complete college or secure the trappings of a middle-class life once they graduate. Ever since, activists have used April 25 and the week surrounding it as an opportunity to keep a spotlight on those issues. This year, events include Twitter chats, webinars, and the announcement of a student loan help hotline.
“One trillion dollars is such a big number by itself, it really highlights the need for elected leaders to take student debt seriously not just as an issue for young people but for the economy as a whole,” said Maggie Thompson, the executive director of Generation Progress, a youth-focused activist arm of the Center for American Progress, a left-leaning think tank.

Since student debt surpassed $1 trillion four years ago, it’s only continued to grow. But the good news is that people are paying more attention to the problem, activists say. Natalia Abrams, the executive director of advocacy group Student Debt Crisis points to the 2016 election, where student debt has become “a big ‘I’ issue.” Both Democratic candidates for president released thorough college affordability plans and some current and former Republican candidates touched on the issue on the campaign trail.

“It took a little while for that big number to permeate in our culture, but now it has,” Abrams said. “There’s still a long way to go, but I do think that the awareness is finally working in the way we want it to, especially when I look back over the last four years.”

Still, activists would like to see more progress. Thompson said she’s surprised that initiatives, such as allowing borrowers to refinance their loans at lower interest rates, have yet to become reality at a national level. Instead, state and local governments are taking the lead on many of these issues, offering residents the option to refinance their student loans or cracking down on unscrupulous behavior in both the servicing and education space, she said.

The federal government has also started to “chisel away” at the problem Thompson said. In one timely example, the White House announced Monday that it’s investing $100 million in job training programs at community colleges as part of its effort to make two years of community college free. The Obama administration has also expanded options to make student loan repayment more manageable for borrowers.

But the level of outstanding student loan debt is growing — by about $100 billion per year — and the cost of college is still high, in part because many states are still spending less money on higher education than they were before the recession.

“We have succeeded in forcing a national conversation about student debt, but I think the next steps are really pushing for solutions,” Thompson said.