A Quick Way to Save $ 1,000 on Your Student Loan Tab
Chances are, this year’s crop of college graduates will enter the world with a newly created degree and a hefty student loan bill.
Seven out of ten seniors graduating with debt, owed to approximately $ 29,650 per borrower, according to the most recent data from the Institute for College Access & Success.
All inclusive, student debt hits a record $ 1.5 trillion in the first quarter of 2018, according to the Federal Reserve.
While this debt burden – plus interest – is overwhelming in every way, it can be particularly devastating for young adults get their first taste of financial freedom.
But there is a way to soften the blow.
Paying a little more than the minimum payment each month – even $ 25 – will reduce your loan faster and you owe less interest, according to Antoine Oakley, spokesperson for lender Sallie Mae.
“Every little bit counts,” he said.
For example, consider an average loan balance of $ 30,000, an interest rate of 8%, and a repayment term of 10 years (this illustration simplifies what is usually a combination of multiple loans, which can be federal and private. with different conditions):
If you pay your amount owed each month:
- You will make 120 monthly payments of $ 363.98
- You will pay off your student loan over 10 years and pay a total of $ 43,677.60.
If you pay $ 25 more per month:
- You’ll pay off your student loan a year earlier and save $ 1,417.61 in interest.
To get a more accurate picture, Sallie Mae’s accrued interest calculator can help you estimate how much you can save based on your loan balance and interest rate. Other lenders have similar tools.
But you don’t need to make an extra payment every month to make a difference – you can do it every now and then, or whenever your budget allows (consider applying birthday money or bonuses ).
And before increasing a payment, be sure to understand the type of loan and your repayment options. You should also clarify that these additional funds are applied to the loan principal and not to future interest payments. (However, if you have any unpaid charges, the money should be applied to them first.)
Finally, make these payments automatic. An automatic payment program will reduce your chances of missing a month and may come with the added benefit of an interest rate deduction on your loan, further reducing your long-term liability.
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