You can never know too much when it comes to financing your education. Here are some facts that may help you pay down your loans more quickly and make the most of your investment.

1.      Size doesn’t (necessarily) matter when it comes to paying off student debt.

No one wants to be burdened with huge amounts of educational debt. But when it comes to paying it off, the size of the debt may matter less than where you attend school, your degree choice, and where you decide to live after graduation.

In a recent report by the Federal Reserve Bank of New York, states with some of the highest average student debt burdens per person tend to have some of the lowest student loan delinquency rates. States where residents carry the lowest levels of student debt, on the other hand, have some of the highest delinquency rates.

The takeaway: Even a high level of student debt can be more easily tackled by a well-prepared graduate who settles in an area where opportunities abound. Graduates with much lower amounts of student debt may struggle with repayment if they choose a low-demand degree, move to an area with a high employment rate, or leave school before graduating.^[1]

2.      Participating in an income-based repayment (IBR) program now can result in tax pain later.

Designed to help debt-burdened grads build a little more flexibility into their monthly budgets, IBRs allow you to adjust your federal student loan payments to take up no more than 15 % of your current monthly income. The payment timeline is extended to 25 years, and interest continues to accrue during that period. At the end of that time, Uncle Sam forgives the remainder of the debt.

Here’s the catch: The forgiven portion of the debt will be taxed as a gift, and those taxes must immediately be paid in full. The tax bill could be substantial. For example, on a forgiven balance of $41,000, taxes could be $10,000 or more depending on your tax bracket. Before enrolling in an IBR, be sure you fully understand the repayment terms and the tax bill that could be waiting for you down the road. ^[2]

3.      Repaying student loans by direct deposit can save you big bucks.

The Department of Education and most other educational lenders offer some type of discount – usually about 0.25 % – on interest for borrowers who sign up for direct deposit payments. Over the life of your loan, that can add up to significant savings. While you’re checking on the availability of direct deposit, it’s a great idea to ask the lender if they offer any other interest rate breaks that could help you pay your way out of debt faster. It never hurts to ask! ^[3]

References

[1] Weismann, Jordan. “These Maps About Student Loans Explode One of the Biggest Myths About Student Loans.” The Atlantic. Web. 15 May 2013. http://www.theatlantic.com/business/archive/2013/05/these-2-maps-about-student-loans-explode-one-of-the-biggest-myths-about-student-loans/275868/

[2] Lieber, Ron. For Student Borrowers, Relief Now May Mean a Big Tax Bill Later.” The New York Times. Web. 14 Dec. 2012. http://www.nytimes.com/2012/12/15/your-money/for-student-borrowers-a-tax-time-bomb.html?pagewanted=all

[3] Feldman, Benjamin. “4 Ways to Pay Off Your Student Loans Faster.” Yahoo! Finance. Web. 13 Feb. 2013. http://finance.yahoo.com/news/4-ways-pay-off-student-110002948.html

About the Author:

Today’s guest article comes from Donna Parshall. She writes articles about frugal living and personal finance for Allied Cash Advance. Allied Cash Advance is a responsible payday loans and cash advance lender.