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You may think student loan debt is as inevitable as death and taxes, but it doesn’t have to be. You can actually start paying off the interest—and sometimes even the principle—before you even finish school. I certainly didn’t know that when I was in college, and didn’t make my first payment until I got my first bill six months after graduating. If I had been just a little more informed, I wouldn’t have a monthly, panic-inducing $230 loan payment on my hands, causing nearly untenable stress and digging into my wallet.
Student loan debt in the US now tops $1.5 trillion, with the average monthly payment around $393 a month. That’s no joke when you’re fresh out of college, desperately waving an English degree around, and can’t find a job. As someone who’s spent the last few years taking any possible freelance opportunity to keep afloat to pay hundreds of dollars in loans each month (in addition to rent and, well, life), I wish I’d done my financial research sooner.
Fortunately, many of you are still enrolled in school and can head off massive debt before you’re stuck out here in the real world with the rest of us. “Graduating seems so far out of reach when you’re a freshman,” said Jubilee Baez, a 2018 graduate of State University of New York, Morrisville who says she is now facing monthly payments of nearly $600 a month. “You’re not even thinking about that right now… so a lot of college students aren’t prepared to handle that burden making monthly payments toward their loans. They’d rather push that off to after graduation and worry about it then.”
But if you take a minute to think about the impact of your debt down the line you’ll be way ahead of the game. “Paying as much as you can, as early as you can, is always a best practice when it comes to repaying student loans,” said Student Loan Hero’s Elyssa Kirkham.
Of course, that means you need to know how much you’re borrowing in the first place, what the interest rate is, and what the monthly payments will be once you leave school—all of which you can find out by checking with your financial aid office and contacting your student loan servicer.
For many of us, taking out student loans was the very first financial contract we’ve ever signed off on, and once we signed on that dotted line we told ourselves not to worry about that ever-accruing debt until at least four years into the future. But there’s a far better course of action.
Here are three ways you can tackle student debt before you’ve even graduated:
Tackle those interest payments
Actually paying off your student loans while you are in college may seem impossible. After all, if you had the money, you wouldn’t be borrowing in the first place. But just because you can’t afford to pay the full loan amount back, that doesn’t mean you can’t start making interest payments right away. And if you have an unsubsidized federal loan (hint: you probably do), that interest starts accruing the minute the funds get paid out.
Making interest payments on your loans while in school is surprisingly affordable. For example, if you borrowed $10,000 your freshman year, and start making interest payments as soon as you get the funds you’d only have to pay $42 a month, assuming the current five percent interest rate. Not only will you have wiped out the interest payments, you’ll also avoid paying interest on all the interest payments you deferred while in school, something that’s known as interest capitalization. Using that same $10,000 loan amount, that works out to a savings of $783. If your loans are closer to the national average of $33,000, you’ll save about $2,500 over time.
“I don’t think many people know that you can make payments now, while you’re still in school,” recent grad Baez said. “And the financial aid offices tell you you’re not required to make a payment until six months after you graduate—keyword, ‘required.’ They don’t tell you that you can start making payments now if you really want to. If that was common knowledge, I’m sure many parents and students would probably be in less debt than they are now.”
To make the interest payments, log onto your student loan servicer’s website to run the numbers. Not sure who your servicer is? “It’s likely a company like Great Lakes, MOHELA, Navient or Nelnet,” Lifehacker reports, but you can always check with your financial aid office to find out for sure.
Even if you have a minimum wage job on campus and can only afford to throw forty bucks a month toward interest, it’ll make a difference you’re going to feel after you finish school.
Give extra money back
If your loan package includes extra funds you don’t need, you can return the money. “Students can accept, reject or reduce the amount of loans offered, but they might not know they could do so or do not ask enough questions to fully understand,” Daad Rizk, Director of Pennsylvania State University’s Financial Literacy Center, explained. This happens when you
If you return the funds you don’t need within 120 days, the loan will be cancelled and you won’t have to pay any interest or fees on the money. “Canceling loans you don’t end up needing is always best, as you won’t be responsible for fees and interest on those funds. But if 120 has passed, you’re stuck with repaying the loan,” said Kirkham.
Of course, it’s better to cancel the loans before you even get them, if you can. For federal loans, you will typically get a notice from your school saying you have a two-week window to cancel the loan. Make sure to put your request in writing and send it via certified mail, U.S. News & World Report recommends.
Another option is to save the money you don’t need (preferably in an interest-earning account) and use it to make loan payments after graduation. That’s what Baez is doing now. “I accepted the entirety because I didn’t want to end up short,” She said. But “at the end of the day that money wasn’t mine in the first place.”
Pay down the principal
Got a high-paid internship during the summer or found a part-time job that leaves you with a few hundred dollars extra each month? If so, consider putting that money toward the principal of your student loans now as that will reduce your total debt once you graduate. Any payment you make that exceeds the current amount of interest owed gets applied to the principal, resulting in a principal reduction.
The great thing about paying off even a small part of the principal before you finish school is that there’s no penalty for making irregular payments, since you’re still in the grace period. What’s more, you’ll reduce the amount of interest you’ll owe after school, because you have paid down part of the principle. So if you have an extra $100, pay that, or if a relative gives you some funds you don’t need right away, consider putting those toward your loans as well. “Making extra payments could save you thousands of dollars in interest charges you would have otherwise paid,” Kirkham added.
The key to making this work is to be sure you still have enough money leftover to cover any other bills like food, your cell phone, or gas. “Keep your spending in check, and consider getting a part-time job while you’re in school to make ends meet,” said Student Loan Hero’s Rebecca Safier. “Even though you might have to make some sacrifices as a student, you’ll be glad when you graduate without a ton of student debt to pay back.”
Your future self will thank you.
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