How To Repay Your College Loans

March 28, 2016
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What’s preventing most millennials from investing either independently or with a financial adviser is the burden of college loans.

Nowadays, college loans are quite the necessity for many students out there and they do very well in weighing down graduates, preventing them from snatching new financial opportunities until they clear their debt. The Federal Reserve Bank of New York gives us all the information we need – the average outstanding student loan balance amounts to about $24,000 while 10 percent of borrowers even owe more than $50,000.

I’ve been doing some research lately and realized that there are actually some things that not many borrowers are aware of, including certain ‘tips’ and ‘tricks.’ After speaking to a few investment managers and financial planners and asking for their advice and top tips on becoming free of student loans, I decided to compile a small list of the best solutions. Some may not be that fast or cheap, but they can definitely help you with your problem.

According to Allan Katz, CFP, president of Comprehensive Wealth Management Group in New York’s Staten Island, the first thing you can do (if you can afford it, of course) is to treat the loan as a sort of a mortgage and simply make larger payments to reduce the principal more quickly. For example, a $25,000 student loan with a 6.8 percent interest with a 10-year payback period amounts to about $288 a month. If you have the means, you should try paying $700 a month instead of $288, which will enable you to repay the loan in just over three years.

By doing this, borrowers actually take care of the principal more quickly, leading to lower interest charges – by paying extra, you actually reduce the amount of the loan substantially.

Another strategy of speeding up the process is adding payments. Instead of sending a check every month, send a check every two weeks. Both methods will enable you to get out of the loan much faster and you can invest the money you make or apply it to other expenses, like purchasing a house, saving for retirement or even putting your children through college.


Clayton Shearer, a CFP at Wellness Financial Services in Thornton, Colorado, gives us a different view on the matter. He urges clients to create a three-to-five-year plan to trim the college debt. He argues that for many clients, it is comforting to know exactly when the loan ends since it gives them a goal in place and allows for more commitment.

Paying this type of loan becomes a part of the client’s monthly routine, much like submitting checks for cable TV and telephone.

For instance, if two clients have a total of $50,000 in college debt (combined) and are making around $100,000 a year jointly, they should establish a budget and curtail their spending. If they spend slightly over $1,000 per month, they will pay off their debt in two years. If they decide not to prepaid, on the other hand, it will take about 15 years for them to pay off the loan.

Charles Sachs, a principal at Private Wealth Counsel in Miami argues that earning money while attending college is one of the best ways one can be proactive about keeping their college debt in check. He calls it a “win-win situation,” seeing as a student who gets a paid position while still in school generates money that can offset loans and build invaluable industry-specific knowledge that can later be used in various fields.

If a student can manage to work enough to put away $1,000 a month, he gets $12,000 per year. That’s $12,000 less in their student loan, which is really a lifesaver in some situations.

Working part time, Sachs adds, while attending college is also beneficial to a student’s overall performance. It helps them develop their discipline, provides invaluable real-world experience on how things work in general, and allows them to earn income that will lower future debt obligations.