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How to pay off student loans without a degree

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You’ve decided to leave college. Maybe you’re becoming an entrepreneur, or you’ve concluded that higher education isn’t right for you. Or maybe you can’t afford to stay in school.

Whatever your reason, during this time of starting anew, don’t forget about those student loans. Leaving school early means you’re more likely to fall behind on payments than someone who has graduated, according to a 2015 survey by the Federal Reserve.

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Here’s how to pay off your student loans without that degree.

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Pay off accrued interest during your grace period

You might be tempted to ignore your loans until your first bill comes due, but if you do, you’ll be kicking yourself later. Why? Unless you have only subsidized federal loans, the amount you borrowed has been accruing interest since you first borrowed it. That interest will be capitalized, or added to your principal balance, when your grace period ends and your loan enters repayment — six months after you leave school, in most cases.

If you use your grace period to pay off your accrued interest and start making frequent payments — as little as $20 a week — you’ll begin reducing your balance, instead of having most of your money go toward interest. Learn more about how to optimize your debt payments.

Another way to save on interest: Put your loans on autopay. Typically, it’ll reduce your rate by 0.25%.

If you can’t make payments yet, start by figuring out exactly where your loans stand. Make sure you know your student loan servicer — that’s the company that takes your payments. Then find out exactly how much you owe, your interest rates and the dates by which you’ll have paid off your loans.

Get on an income-driven repayment plan

Leaving school without a degree can make it harder to find a well-paying job, which can make loan payments difficult. Millennials aged 25-32 who have a bachelor’s degree or better earn a median salary of $45,500 per year, while those who have a high school diploma earn a median of $30,000, according to 2014 data from the Pew Research Center.

If you’re having trouble affording your federal loan payments, income-driven repayment plans can provide relief by lowering your monthly payments and spreading them out over 20 or 25 years. In fact, depending on your circumstances, your monthly payment could be $0. Plus, the government will forgive any balance remaining at the end of your new term. You can apply for an income-driven plan either through your servicer or on the Department of Education’s website.

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If you have private loans and can’t make the minimum payment, ask your lender about your options. Accredited financial counselor, educator and coach at Youth Smart Financial Education Services Roslyn Lash suggests creating a budget and showing that you can’t afford all your payments, then asking your lender if it can reduce your interest rate.

Develop your professional skill set

College may not have panned out for you, but it probably helped you hone a few soft skills, such as teamwork or problem solving, that can help you improve your earnings potential, even if you can’t find your ideal job right out of school. Start by identifying the skills you have and the ones you need to be successful in your chosen field, then seek out ways to fill in the gaps.

That could mean getting a mentor, looking into massive open online courses or taking advantage of training programs at your company, notes Hannah Morgan, a job search strategist and founder of CareerSherpa.net.

“There’s nothing that says employees can’t start a brown-bag lunch and work together to help each other learn skills,” she says.

Get a side job

If you’re not earning as much as you need to make your payments — or you want to pay down your loans faster — consider taking on a side job that you can do remotely with relatively little time.

“The gig economy is exploding right now,” says Austin Lewis, a certified financial planner and founder of Rooted Financial Planning. Lewis notes that over half of his clients have multiple income streams. “You can drive for Uber and Lyft, you can do TaskRabbit. There’s so many gig-economy jobs emerging that you almost don’t need a full-time job.”

Ask for a deferment

If you absolutely can’t afford your monthly payments, a deferment — a period during which you don’t have to make payments — can be a useful tool while you figure out your finances. It can also alleviate some of the pressure if you’re between jobs. And the government might even pay the interest on your federal loans during your deferment, which is not the case if you choose a forbearance period instead.

But, as Lash cautions, interest on private loans will continue to accrue during a deferment.

“Dormant does not mean dead; you still have to pay it. And you either pay now, or you pay more later,” she says.

Devon Delfino is a staff writer at NerdWallet, a personal finance website. Email: ddelfino@nerdwallet.com. Twitter: @devondelfino.

This article first appeared at NerdWallet.


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