Student Loan Repayment: 3 Secrets You Can’t Afford to Ignore

Marissa Daniel
May 4, 2021

Going to college is the best life choice you'll ever make—but if you’re like many people, you’re looking at the financial aspect, and it’s looming larger than the benefits.   Everyone wants the student loan secrets, and if paying for student loan debt has got you down (or even has you thinking about skipping higher ed altogether), you need to know one thing: Taking out a loan to go to college can be tremendously helpful to your financial well-being.   Everyone knows a college graduate earns more than a high school grad. And it’s not chump change, either: It’s a premium of nearly 75 percent (or well over $30,000 a year).    But the loan itself can help too. Repaying your college loan boosts your credit score, which is important when buying a car or buying a house as your life after college begins.  

How student loan repayment can seriously boost your credit score

Student loans that are in good standing positively impact your credit score. Long-term loans that have been repaid over time show lenders that you’re reliable and can meet your obligations.   Student loans show finance companies:
  • How long your credit history is.
  • Whether you pay your debts on time, make late payments, or default on payments.
  • Your credit utilization ratio (how much you owe compared to what other lenders are willing to let you borrow).
  • Whether you’ve recently applied for new lines of credit.
  • The types of credit you have (such as student loans, credit cards, and car loans).
  It's no secret that making on-time payments builds a solid credit history—one that can help a lender decide to give you a mortgage loan in the future. A solid credit history can also get you favorable interest rates on credit cards and help you secure credit from other types of lenders.   If you’re concerned that you’ll be paying your loan off forever, working a short-term second job can dramatically reduce how long it’ll take to become debt-free.   If you’re going to put in the extra hours, though, be smart about it. Cut back your expenses as much as possible while you’re working to pay off your student loan, and you’ll essentially multiply the effect of every paycheck.   This list of side hustles for college students isn't just for college students at all, find ideas to make extra money especially during the summer months when lots of businesses are looking for extra help.  

Look into refinancing to reduce interest

Reducing your interest rate is always a smart choice, and the best way to do that can be to refinance your student loans, possibly consolidating the loan with any credit card debt.   When you refinance any loan, your new lender pays off your old lender. Your new loan is the same amount of principal, but at a lower rate of interest. In order to choose a company or bank to refinance your student loan with, do your research.  
  1. Compare rates. Don’t be afraid to ask three, four, or even a dozen lenders for quotes. The time you put in now will pay off when you get the lowest possible interest rate.
  2. Negotiate for the lowest lender fees. Zero is good. Once you’ve created a shortlist of potential lenders, see who’s willing to come down on fees to earn your business.
  3. Match loan products to your goals. If your goal is to keep some cash in your pocket, pick a lender that’ll offer you lower monthly payments; if it’s to pay your loan off faster, choose a lender offering shorter loan terms.
  4. Confirm there are no prepayment penalties. Some lenders charge you for making early, one-time, or lump-sum payments. In other words, make sure you can use that great tax rebate or birthday gift against your loan without penalty.
  Not sure if you're ready to refinance your student loans? This article can help.  

The number 1 secret you’re not using to pay back your student loans faster

Nobody wants to pay off student loans well into retirement, but few people know how to reduce college debt fast.   We do. In fact, it's our favorite student loan secret which is why we saved it for last.   Here’s the trick you may not be using to pay back your student loans faster (but don’t worry—most others aren’t using it, either): Double up on your payments.   Making bi-weekly payments can help eliminate interest over the long-term and reduce the principal amount more quickly. You don’t have to make a full payment every two weeks, either. Even increasing your monthly payment by half can make a tremendous impact on how quickly you pay off your debt.  

Working out the math

Let’s say you owe $40,000 in student loan debt—that’s close to the national average. Let’s also say you’re paying it off over 20 years (that’s 240 months, and it’s also close to the national average). If you’re paying 6 percent in interest, your monthly payments are $773.31. (Circle back to the part about refinancing to see if you might be able to lower that interest rate, too.) At that rate, you’re paying $6,398.72 in interest over the life of your loan, so you’re paying a total of $46,398.72 for college.   If you increase your monthly payment by $150, your lifetime interest payments drop to $5,193.72— that’s a savings of $1,205.      Increase your payment by $350 per month and your lifetime interest is just $4,160, and you’ll pay your loan off early.   Pro tip: Use the bi-weekly payment strategy on other debts too, like credit cards and lines of payment. You’ll be surprised at how quickly you reduce the principal and interest payments on your loans.   Don't forget to apply for student loan forgiveness if you're eligible! This will save you the most amount of money.