College Debt / Loans | Freeman Capital

Payoff student loan debt faster

with this easy 5 step formula.

General student loan debt facts

First, let’s start with a general picture of the student loan landscape. The most recent reports indicate:

  • There is $1.56 trillion in total U.S. student loan debt
  • 44.7 million Americans have student loan debt
  • 11.5% of student loans are 90 days or more delinquent or are in default
  • Average monthly student loan payment (among those not in deferment): $393
  • Median monthly student loan payment (among those not in deferment): $222

(Data via the U.S. Federal Reserve, here, here and here, and the Federal Reserve Bank of New York, here and here.)

Top 5 Ways to Pay off Your Loans Faster

1. Make more than the minimum payments.

For example, let’s assume you have $100,000 of student loan debt at a 7% interest rate with a standard 10-year repayment term. By paying only $100 extra per month, you can save $4,696 in interest costs and pay off your student loans 1.08 years earlier.

2. Split your payments in two.

Say you owe $30,000 in student loans with an average interest rate of 7%. Over a standard 10-year repayment period, you’d be making monthly payments of $348. If you instead make $174 payments every two weeks, you’ll be debt-free 13 months sooner and save $1,422 in interest.

3. Sign up for auto-pay.

If you’re trying to pay off your student loans, enrolling in automatic payments can be a smart approach to relieving this debt. With autopay, your payments will be automatically sent by your bank to your lender, instead of you sending them manually each month. The most common rate reduction offered by federal and private student loan servicers is 0.25% on your interest rate.

4. Refinance.

You can potentially save tens of thousands of dollars throughout the life of your loan by refinancing. There are three main benefits to refinancing student loans:

  • You can get a lower monthly payment, freeing up cash for other expenses or investing
  • You can pay off your loan faster, saving you money in interest.
  • A lower monthly payment decreases your debt-to-income ratio, making it easier for you to qualify for a mortgage.

Last but definitely not least...

5. Investing - Our personal specialty.

If your student loan interest rates are less than 6%. Then you have some room to use the market to your advantage. Here is an example:

Let’s say you have $50,000 in student loans. With a 20-year term and a 4% rate, the monthly payment will be $303. If you contribute $500/month to your payment, you’ll be student loan debt free in around six years.

If you start by investing $500/month in a tax-sheltered portfolio at a yearly 8% rate, you’ll have nearly $46,000 in your portfolio at the end of six years.

Your student loan balance at that time would be $38,754. After just six years, your investment portfolio could exceed your student loan balance by $7,246. 

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