Student loans that we receive to finance the costs incurred during our teaching life may be a problem for us in the years to come. In particular, in order to receive large amounts of loans, such as mortgage loans, we must first pay student loans. Therefore, many people try to pay off student loans early.
When you pay your student loans, your debt to income ratio will decrease. When borrowers apply to lenders, lenders look at their credit score and income. At the same time, the other factor they pay attention to is the ratio of debts to income. For these reasons, it is very important to pay all student loans in order to have a good budget management. You also have to pay your student loans debts even if you have to declare bankruptcy. It is most sensible to pay off student loans as much as possible.
Benefits for don’t pay off student loans early
To pay off student loans early has advantages and disadvantages. To pay off student loans early, you will need to pay more monthly. You should therefore choose the best payment method for you based on your personal situation. You may also need to change your spending and lifestyle to pay student loans early. So you need to determine which is more important to you.
There are many reasons why you may not want to pay off student loans early. The main reasons why you may not want to pay off student loans early are:
- Flexible Repayment Plans
- Saving Money
Flexible Repayment Plans;
The first reason you want not to pay off student loans early may be that the government offers some flexibility in repayment to pay federal student loans. The Department of Education offers eight different payment plans and some are for borrowers with low incomes. Private lenders are not very flexible in repaying student loans. Many federal student loans are forgiven after 25 years have been paid. This option is best for those who have difficulty paying student loans.
You may choose to invest with the extra money you pay to pay off student loans early, as paying early on student loans means you will pay extra money.
To pay off student loans early means that you will be overpaying, which will prevent you from putting up for rainy days. Everyone should have emergency funds for medical emergencies, job loss and other important emergencies. If all your money is going to pay student loans, you cannot create emergency funds, so it doesn’t make sense to pay off student loans early. However, if you want to pay off student loans early but you still have some money, it makes sense to pay off student loans early.
To pay off student loans early
After considering these reasons, if you still believe that pay off student loans early is beneficial to you, you have many options to pay off student loans early. Approximately 70% of people receiving student loans pay student loans completely before ten years. The main methods you can use to pay off student loans early are as follows;
Pay extra on your principal every month;
One of the simplest ways to pay off student loans early is to pay extra each month. You can save even more if you do this by giving priority to your high interest loans. The sooner you pay student loans, the lower the total amount you will pay. With the principal you pay extra, you can also reduce interest payments. This makes it easier to pay off student loans early.
Set up automatic payments;
If you decide to pay extra to pay off student loans early, the best method is to create an automatic payment. So you don’t have to think about your payments every month. You can use this method even if you don’t decide to pay extra to pay off student loans early. Creating an automatic payment for federal student loans can give you a 0.25% interest rate reduction. You will also track your payments and never miss a payment. So your credit score will not be damaged. Especially if you want to get high consistent loans like mortgage loans, your credit score will be very useful.
Refinance and consolidate your loans;
Another option for pay off student loans early is to refinance student loans. If the interest rates of your existing student loans are high, you can finance them with a loan with a lower interest rate. This allows you to pay early on student loans by paying more on the principal of your credit.
If you have more than one student loan, you can make a monthly payment by consolidating student loans. Consolidation loans does not lower the interest rate but allows you to make a monthly payment. Thus, by paying more principal monthly, you can still pay off student loans early.
Seek forgiveness for student loans
Another option to pay off student loans early is to use the right of forgiveness granted to federal student loans. Federal student loans may be forgiven if you work in public services or in certain professions, such as teaching. But, certain conditions are necessary for the forgiveness of federal student loans.
You must meet the following requirements for forgiveness of federal student loans through public service;
- You must have worked at least 30 hours per week in public services after 1 October 2017. You can fill 30 hours of weekly work with different professions.
- You should work for a qualified public service employer. These can be;
- Emergency services,
- Government organizations,
- Public education,
- Public health,
- Legal services,
- 501(c)(3) nonprofit organizations.
- To pay off student loans early, you must pay your federal student loans for 10 years (120 payments). When you complete these payments, the US Department of Education will forgive your student loans debt.
If you have federal student loans and are unable to meet public service requirements, the other option is that the full-time teacher must work for five consecutive years at a primary, secondary or educational service agency that provides services to low-income students. In this way, federal students may be entitled to forgiveness of their loans. But, this does not apply to special student loans. Those with private student loans may consider Student Loan Repayment Assistant Programs to pay off student loans early.