Paying Down Student Debt

February 16, 2021

An increasing number of young adults are returning home from our colleges and universities with student debt in tow. As each year passes, it becomes increasingly clear that paying the massive cost of tuition and fees cannot be taken lightly. Nearly 45 million Americans currently possess some form of student loan debt, aggregating to nearly $1.7 trillion across the country. Furthermore, this debt is rapidly increasing, as less than two decades ago the loans totaled under $250 billion.

To appropriately address this reality, it is vital that students and their families are prepared with a plan regarding how to pay off these loans.


Open a 529 College Savings Plan

“The best defense is a good offense,” is an often-used phrase in American sports highlighting the importance of staying on the front foot. While considering the payment for a college education might not bring the visceral excitement that you find in sports, the adage rings surprisingly true in both cases.  

One of the best ways to combat the growing need to borrow money for college-related expenses is to start planning and saving early with a 529 plan. Contributions grow tax-deferred and withdrawals for education-related expenses are tax-free.

The past few years have seen two legislative acts make these plans much more flexible. As of 2017, 529 plans can be used for K-12 education with distributions capped at $10,000 a year. The 2019 SECURE Act allowed 529 plans to be used for other education routes such as trade or technical schools, as well as permitting up to $10,000 a year to be spent on student loans. However, be advised that this rule varies by state: Indiana is one state that does not permit repayment of student loans as a qualified expense for 529 plans. Opening a 529 College Savings Plan today is a great way to address any and all education-related expenses that might come your way.


Consider “Extra” Payments

One of the central problems regarding the amount of student loan debt currently held in this country is the interest rate that many of these loans carry. Certain private loans can come with unpleasantly high interest rates that make the already unsavory task of paying off student loan debt even more difficult.

For any who have the ability, making extra payments to your student loans is a great way to combat the high interest rates. If you have multiple loans with varying rates, you can ensure that the extra payments are being applied to the loan with the highest rate to significantly increase savings on interest.


Refinance Loans

For some, refinancing your or your child’s loans can potentially lead to sizable savings down the road. As previously stated, private loans often come with a high and burdensome interest rate. Those with the ability to refinance these loans to a lower interest rate can expect to see significant savings over the life of the loan. Similarly, if it is feasible to refinance with a shorter term, you will pay more per month, but you will also repay the loan faster and save on interest.


Contribute “Unexpected” Money

Many of us have heard the phrase “every little bit counts” so many times that we fail to truly register and analyze its meaning. Despite our desensitization to the phrase, it is an important concept in loan repayment. Whether it comes from a raise or bonus, unexpected money that you receive throughout the year can make a substantial impact on your loans.

Just like paying extra on your other loans, contributing any unexpected money that you might receive is a great way to make paying off student loans easier and more realistic.


If you would like to learn more about 529 plans or how we can help you develop your own personalized strategy for paying down your student loans, please give our team a call.



Student Loan Debt Statistics:

2017 Tax Cuts and Jobs Act:

2019 SECURE Act:

Indiana 529 Plan / SECURE Act Rules: