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4 Ways Parents Can Pay Off Student Loans Faster

Please read carefully while considering to refinance your federal student loans:

Due to recent events, including an executive order by the President to waive federal student loan interest during the COVID-19 crisis, we are recommending that all customers with federal student loan debt carefully consider their options before refinancing with a private student loan. Customers should explore all available resources at their disposal to understand how the executive order may impact you. Additional proposals by congress have also been announced that may impact customers with federal student loan debt. When you refinance, you waive any current and potential future benefits of your federal loans and replace those with the benefits of the Education Refinance Loan.

Please carefully review your current and potential future benefits on your federal loans before refinancing.

Key Takeaways

  • Refinancing student loans could help you pay them off faster.
  • Get an extra payment in each year by making bi-weekly payments instead of one per month.
  • Use money windfalls like tax refunds and raises to help pay more than the minimum each month.

No one likes having debt hang over their head. That’s doubly true when it comes to student loans. Parents take on an average of $33,291 in debt for their children’s education, and that debt could impact your retirement planning or sideline other dreams and goals.

So, how can you solve the problem? There are a few options available. Look over these four tips for ideas to help you pay off the student loans you took out for your kids faster.

1. Refinance to adjust the rate or term

Getting a lower interest rate on your loan can help you pay off the principal faster. You can also reduce the length of the loan, although this will likely increase your monthly payment amount. Some student loan refinancing options allow parents to refinance immediately, while the student is still in school.

Take the time to weigh the pros and cons of refinancing federal Parent PLUS loans if you have them. It could mean losing some of their benefits.

2. Make an extra payment

Most people make one payment per month toward their student loans, totaling 12 payments in a given year. However, if you could make one extra payment each year over the life of your loan, those extra payments would help you pay off your loan faster. You can do this by splitting your monthly payment into bi-weekly payments instead.

Consider this example: Your monthly student loan payment is $200. If you made this payment once a month, you'd pay $2,400 over the course of a year. However, let's say you split that $200 monthly payment into a $100 payment every other week. You'd end up paying $2,600 over the course of the year, which is a $200 difference than if you stuck to one monthly payment. That extra $200 each year, over the course of your loan, can really add up and help you pay off your loan faster.

Note: Be sure your additional payment is not being treated as an early payment for the next month. You’ll want to confirm that the funds are being applied to your loan right away to help lower your principal. Also, check your loan agreement to be sure there are no penalties for paying off the loan early.

3. Use money windfalls

From tax refunds to pay raises, consider allocating any new money to paying off student loan debt. Sure, you could spend it on a night out or the latest tech gadget, but if you’re looking to pay off student loans faster, it might not be the best use of the money. It might be less exciting, but it’s a smart way to knock down your loan principal.

4. Trim your budget

Taking a hard look at your budget is essential to paying off student loans faster. Find places to trim expenses; then, use those funds to increase your monthly payments. It could be as simple as eating out one or two times fewer per month. Or, maybe you decide to put off buying that dining room table or a new mattress. Making these sacrifices can be easier knowing the money is going to a good cause.

The bottom line

Paying off student loans faster could open up a window of opportunities, whether that means increasing your retirement contributions or saving for other life goals like a dream vacation or long-awaited home renovation.

More information

Want to learn more about refinancing the student loans you took out for your kids? Learn more about Education Refinance Loans for Parents.

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