Best Ways to Pay Student Loan Debt

Rising college costs coupled with a challenging job market have left many graduates feeling like they’re suffocating under a mound of student loan debt. With hard work, strategic planning and good resources, some graduates have been able to pay their loans off quickly to eliminate these debts in a matter of just a few years. If you’re struggling to pay student loans, wondering about student loan debt forgiveness or simply looking for a faster way to get out of debt, read on to learn more about some of the ways to pay off your student loans.

What is the Average Student Loan Debt?

There’s a very good reason that student loan debt relief is a hot topic in 2016. Experts estimate that the student loan debt in the United States tops out at over $1.25 trillion among the 43 million borrowers in the country. In May 2016, the Wall Street Journal reported that the Class of 2016 graduated with an average debt of $37,172, a record-breaking figure that exceeds the 2015 average by $2,172.

Student Loan Debt Statistics

If you aren’t aware of the student debt crisis in America already, you might be a little astounded by the 2016 student loan statistics. For a comprehensive look at student loan debt, consider the following:

  • $1.25 trillion in student loan debt in the U.S.
  • Student loan delinquency rates of 11.6%
  • 43.3 million Americans face student loan debt
  • The average monthly payment for borrowers between the ages of 20 and 30 is $351

Considering those enormous figures, it’s no wonder that it feels like an insurmountable task to pay off student loans. You can do it, though, and many millennials are increasingly turning to creative ways to earn more, pay more and pay off their loans faster than ever.

What’s the Ideal Way to Pay Off Student Loans?

With such a large portion of your money going to pay your student loan bill every month, what other purchases are you forced to forego? Vacations, contributing more to a retirement account and buying a home are among some of the top purchases for young professionals. If you dream about being able to do more with your money, seriously consider building a plan to pay your student loan off faster, which can open up your budget and save you money in the interest you would have continued paying over the life of the loan. When it comes to finding the right way to paying off your student loans, there’s no single solution; what works for one person might not work for you. To make a dramatic difference, you may need to use more than one strategy.

Student Loan Debt Consolidation

Consolidating student loans won’t necessarily help you pay the loans off faster. The consolidation loan may come with a longer repayment term that your original loans, but with a fixed interest rate. The benefit of consolidating loans is to have one simple payment instead of several smaller ones.

Additionally, because you can still take advantage of the student loan interest deduction for consolidated loans, you could use the money you get back from the Internal Revenue Service to make an extra payment or two on your loan. For some of the most effective ways of getting out from under your student loan debt, read on to discover five ideas that you can use alone or in combination with each other.

5 Ways to Get Out of Student Debt Fast

Whether you’re a seasoned professional or a recent college graduate, dealing with student loan debt can be daunting. Once you’re done paying off this debt, the options you have to help you invest in your future become much more flexible. Following a few simple ideas can help you get out from under your student debt quickly and efficiently.

1. Assess Your Debt

Before you can tackle your student loans, you need to face them head-on. Visit your student loan servicer’s website for each of your loans to note the principal amounts remaining on your loans along with the interest rates.

While you’re at it, grab a copy of your credit report to take a hard look at your total debts, including your credit cards and any other loans. Note your credit score and any mistakes that you need to report to the credit bureaus.

This is an example of what your credit report would look like:

Credit Report_900

2. Pay More Than the Minimum

This is the single most effective and easy method for paying debt off. If you set up automatic payments with the extra amount included, the extra money goes directly to paying down the principal. Automatic payments also make it less likely that you miss a payment or change your mind. Take any student loan tax credits that you earn and put those amounts toward the principal of your loan. Any time you earn or receive extra funds, put them to work by making extra payments or making larger payments.

If you’re already struggling with your loan payments, you might not be able to make much of a dent in the amount you owe. Although paying as little as $20 per month helps speed things up, if you want to get out of debt fast, you need to make larger payments. Find a way to make extra money by freelancing, getting a part-time job, increasing your hours at work or picking up odd jobs such as petsitting, babysitting, working as a consultant, or coaching or tutoring high school students.

Anthony’s Story

To illustrate how effective this can be, consider the example of Anthony, who graduated with $50,000 in student loan debt. He was able to lock in a fixed APR on his loans of 4.5% and a standard repayment term of 10 years. Now, his minimum monthly payment amount totals $518.19. By paying only the minimum over the full 10 years, Anthony pays a total of $62,182.80.

Because Anthony wants to get out of debt faster, he pays he pays an additional $500 every month on top of the minimum for an accelerated payment of $1,018. By tackling his debt this way, Anthony pays off his loan in four years and seven months. He also saves an additional $6,819 in interest.

Debt AmountInterest RateMonthly PaymentTotal/Difference
Scenario 1: $50,0004.5% for 10 years$518 (minimum payment)$62,182, which is $12,182 more than the original loan
Scenario 2: $50,000 4.5%, debt is paid off in 4 years and 7 months$1,018 ($500 more than the minimum)$55,363, which saves him
$6,819 in interest

3. Consider Using a Snowball or an Avalanche Approach

If you use the debt snowball approach, you begin paying your student loans off starting with the one with the smallest balance while making minimum payments on the other loans.

For example, Margaret has four student loans with balances of $2,565, $14,444, $21,262 and $3,465. She uses the snowball method and begins by putting as much extra money as possible toward the $2,565 loan while paying the minimum required payments on the others. Once Margaret pays that loan in full, she shifts to making extra payments on the $3,465 loan until she pays it in full. She continues by paying off the $14,444 and $21,262 loans in that order until her debt is gone.

This method offers quick results that help keep you motivated. The debt avalanche approach, on the other hand, involves paying the loan off that has the highest interest rate first while making the required minimum monthly payments on the other loans. This ultimately saves you money on the amount of interest you pay and speeds up the repayment process.

4. Refinance Your Loan

If you have good credit and a steady income, odds are good that you can lock in low student loan refinancing rates. Whether you have federal or private loans, refinancing requires you to go through private lenders. This means that you need to meet the lender’s requirements regarding income and creditworthiness, both of which point toward the financial feasibility of you repaying private student loans. By refinancing to a lower interest rate, a larger portion of your payment goes toward the principal to pay down the loan faster.

5. Research Loan Forgiveness

Student loan forgiveness is an umbrella term that describes several specialized programs that can cancel your student loan debt and discharge you of all responsibility for the repaying the loans. Examples of loan forgiveness programs include:

  • Public Service Loan Forgiveness, a student loan forgiveness program offered to full-time employees of nonprofit, 501(c)(3) organizations or governmental agencies
  • Teacher Student Loan Forgiveness, offered to teachers who work in low-income schools
  • Direct Loan Forgiveness for borrowers who take advantage of Income Based Repayment (IBR) and Pay as You Earn (PAYE), both of which are based on a percentage of your discretionary income

Once you meet the criteria for a loan forgiveness program, the remaining balance on your loans is canceled and cleared. Beware of any scams or companies that promise immediate results. To qualify, you must meet strict criteria, but these programs are certainly worth a closer look when you’re figuring out your options.

Case Studies

Seven out of 10 seniors who graduated from public and nonprofit colleges in 2014 had an average student loan debt of $28,950, according to the most recent numbers crunched by the Institute for college Access & Success.

In her second edition release of CliffsNotes Graduation Debt, author Reyna Gobel explains that student loan minimum payments are typically figured for a 25 to 30-year term so you could be paying it for most of your adult life. The debt could even hamper your ability to move out of your parent’s house, buy a car, buy a house or even start a family.

So, how do you know if your student loan debt is realistically payable before 20 or 30 years pass, given your starting salary? The simple formula cited by Mark Kantrowitz, student loan expert and publisher of edvisors.com is, “If your total student loan debt is less than your starting annual income, you will be able to repay it in 10 years or less.”

Kantrowitz says that paying 10 percent of your monthly income toward student loan debt is manageable, and paying 15 percent is stretching that limit.

Many young adults graduating with student loan debt just want it gone, above all else, and they are willing to stretch. They are proof positive that it can be done, by using extreme student debt payoff strategies.

Want to see how they did it?

Student loan payoff strategy #1: Extreme budget-cutting

Name: Zina Kumok
Balance: $28,000
Current profession: Personal finance writer/blogger in Denver, Colorado
Starting salary after graduation: $28,000 in an entry level newspaper reporting job
Time to payoff: 3 years

Why she did it: “As soon as I made that first payment and saw how half went to interest, I realized I wanted to be debt-free as soon as possible. It was so hard to learn how little my $28,000 income really was.”

How she did it: “My strategy was extreme budget-cutting to make as many additional payments toward principal as possible. Once I moved in with roommates and cut my rent payment, it was even easier.”

Extreme student debt payoff secrets: “I signed up for auto-debit and on that day every month I would also put in my extra payment for whatever I could so it would automatically go to principal. That included birthday money, a bonus or holiday gift money. I also used the ‘snowball method‘ of debt payment where you pay off the smallest loans first to free up money from that payment as well as use the momentum for seeing it paid off to put toward paying off the next smallest loan and I just kept going.”

Professional opinion: Edvisors urges you to take advantage of auto-debit programs for 2 reasons.

1. Auto-debit, which automatically transfers loan payments your bank account to the lender, helps you avoid late payments

2. Signing up often makes the borrower eligible for a discount on the loan’s interest rate (0.25% to 0.50%).

Student loan payoff strategy #2: Keep college costs low

Name: Micah Fraim
Balance: $11,000
Current profession: Certified Public Accountant, owner of Micah Fraim CPA in Roanoke, Virginia
Starting salary after graduation: $40,000 in an entry level accounting job
Time to payoff: 6 months

Why he did it: “While mortgage debt and other types of debt can be a financial tool, I naturally hate consumer debt and student loan debt which is just a drain on income.”

How he did it: “My goal was to pay it off in one year at $1,000 per month, with a one-month grace period. Because I lived at home and paid only $400 rent to my parents, every other dime went to the student loans in a bi-weekly plan and I paid it off even faster than my goal.”

Extreme student debt payoff secrets: “First keep your college costs low. Then, pay all your other bills immediately so you can’t spend that money on something else, so you can see immediately how much you have left over from each paycheck to pay biweekly toward your student debt.”

Professional opinion: Gobel encourages borrowers to make bi-weekly payments. If you do, you’ll pay the equivalent of 13 monthly payments per year instead of 12.

Student loan payoff strategy #3: Keep expenses low

Name: Nick Santora
Balance: $60,000,
Current profession: Cyber security specialist, owner of Curricula, a cyber security training program for corporations in Atlanta, Georgia.
Starting salary after graduation: $50,000 in an entry level cyber security job
Time to pay off: 5 years

Why he did it: “I wanted to challenge myself to get that loan paid off by the time I turned 30.”
How he did it: “I paid a ‘bill to myself’ every month of $1,000, the amount I would need to pay the loans off in 5 years.”

Extreme student debt payoff secrets: “I lived with roommates so my rent was only $500 per month. Along with a decent starting salary I received bonuses and raises every year and I used all of that to attack my student loans aggressively. It was me against the student loans. Without that aggressive focus, goals can fall apart.”

Professional opinion: Gobel advises borrowers to put any raises or bonuses towards student loans instead of lifestyle boosts. The only exceptions to that rule are if you have no emergency fund or you have much higher interest credit card debt to pay off as well.

Student loan payoff strategy #4: Earn extra income

Name: Michelle Schroeder-Gardner
Balance: $40,000
Current profession: Personal finance blogger currently writing and traveling around in an RV
Starting salary after graduation: $50,000 as an entry level financial analyst
Time to pay off: 7 months

Why she did it: “I received my first student loan payment bill around 5 months after I graduated and I realized that I needed a plan to get out of student loan debt.”

How she did it: “I am queen of the ‘side hustle’ to drum up extra cash. My blog was one of my original and most successful side hustles, so much so that I quit my day job after my blog income surpassed it. I’ve also done mystery shopping, surveys, virtual assisting, and freelance writing for others all to pay off my student loan debt fast. I think everyone really does have time for a side hustle and they should use it.”

Extreme student debt payoff secrets: “Towards the end of my student loan debt payoff journey, I decided to dip into my emergency fund to make final payoff so much quicker. Also, I knew my new higher and growing income could support repaying the emergency fund very quickly.”

Professional opinion: Using an emergency fund to pay off student loan debt is only advised if you still have some emergency fund and your current income can replace it quickly. Gobel cautions that you could be at the mercy of an emergency that uses up your cash and delays another debt payment, putting you behind and adding fees and interest.

Student loan payoff strategy #5: Pay down the principal

Name: Jonna Reczek
Balance: $12,000
Current profession: Public Relations account associate in New York, N.Y.
Starting salary after graduation: $38,000 as an entry level public relations account associate
Time to pay off: Recently graduated and still paying

Why she did it: “I had a discussion with my dad who explained how paying longer results in paying more interest. That’s when I knew I had to pay them off as quickly as possible.”

How she did it: “I used the 6-month grace period to find a good job as soon as possible and build up a savings base. Once the $2,000 loan became payable, I decided to just pay it with the savings I had amassed to avoid stretching it out with its higher interest rate. Now, I can devote all my extra money to the other, lower-rate, $10,000 loan.”

Extreme student debt payoff secrets: “I am currently living with a family friend so I only pay $500 monthly rent which includes everything. I also front-load all my payments so the extra amount goes towards principal. Since I’m newly out on my own, I just learned that opening my mail every day is actually very important. I recently found a letter with a November time-stamp containing a notification that my first loan installment would be due in February.”

Professional opinion: Gobel suggests always being aware of all your student loans (you may have many), their specific interest rates, loan terms and payment dates. She advises using the National Student Loan Data System as your first step in adopting an extreme student loan debt payoff plan.

Any extra amount you can put toward student loan debt is good.

Gobel explains (with a chart in her book) that even $5 reduces the amount you owe and the length of the loan and amount of interest you will ultimately pay. She also advises borrowers to check with each loan servicer to ensure that none of these extreme payment strategies voids any specific direct-debit or other borrower benefits attached to your current payment plan.

Other Strategies

If you’re struggling with student loan debt, you’re not alone and fortunately, there are a number of student loan repayment options that can help.

Income-based  repayment (IBR)

All borrowers with a financial hardship and qualifying outstanding loan balances (Direct, Stafford, PLUS and Direct/FFEL consolidation loans made to students) are eligible to participate. The IBR plan sets your payment amount to 15 percent of discretionary income.  That’s the difference between your adjusted gross income (AGI) and the poverty guideline for your family size in the state where you live.

Payments are based on income and family size and change each year. The minimum payment is never greater than the standard ten-year repayment amount. If the calculated payment does not cover the interest charges (on the subsidized portions of the loan), the government will pay the difference for up to three years so that the loan balance does not increase. This program also imposes limits on the capitalization of interest that accrues during deferment or forbearance.

Pay-As-You-Earn (PAYE)

The Pay-As-You-Earn plan is available to borrowers who took out their first qualifying loan (Direct subsidized and unsubsidized, Direct PLUS loans made to graduate or professional students, and Direct consolidation loans without underlying PLUS loans made to parents) on or after October 1, 2007 and who have received at least one disbursement on or after October 1, 2011. The borrower must also demonstrate financial hardship. Some ineligible loans are nonetheless considered when determining eligibility.

Monthly payments are based on income and family size, and change each year. The minimum payment is never greater than the standard 10-year repayment amount. Interest payment benefits are similar to those offered by the income-based repayment program, and capitalization is limited.

Any remaining balance after 25 years is forgiven.

Other repayment options

Graduated repayment allows the borrower to start with lower monthly payments that increase over time, usually every two years. Eligible loans include Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans and all PLUS loans.

Extended repayment allows the borrower up to 25 years to repay the loan. Eligible loans include Direct subsidized and unsubsidized loans, subsidized and unsubsidized Federal Stafford loans and all PLUS loans.

Borrowers who don’t qualify for the IBR repayment plan might consider income contingent repayment, which does not require a hardship. Payments are based on income and family size and the loan balance is forgiven after 25 years. Eligible loans include Direct subsidized and unsubsidized, Direct PLUS loans made to students and Direct consolidation loans.

Income sensitive repayment is a ten-year repayment plan based on income, with no hardship required. Eligible loans include subsidized and unsubsidized Federal Stafford loans, FFEL PLUS loans and FFEL consolidation loans.

An online payment calculator can show you the different payment amounts you’ll pay under the different plans and the time frame for repayment. For example, a single person in California whose AGI is $30,000 and whose outstanding loan balance is $25,000 at 4 percent interest will pay between $104 (200 months) and $253 per month (120 months) depending on the plan chosen. The highest monthly payment results in the lowest total amount paid. The lowest monthly payment adds 80 months to the loan.

Repayment options are different for Perkins loans; contact your school for information.

Loan forgiveness and cancellation

In some cases, student loans may be forgiven in whole or in part. For example, Direct, FFEL and Perkins loans will be discharged in their entirety if the borrower dies or becomes permanently disabled. But you needn’t take such drastic measures to have your loan reduced.

Become a teacher. New borrowers (as of October 1, 1998) who teach full-time in a low-income elementary or secondary school or qualified educational service agency for five consecutive years can have as much as $17,500 of their loan balances forgiven.

Borrowers employed in public service are eligible for Direct loan forgiveness after having made 120 payments (ten years), even in the PAYE or IBR repayment programs. Public service includes Peace Corps volunteers, U.S. armed forces serving in hostile areas, nurses, medical technicians, law enforcement and corrections officers, Head Start workers, child or family services workers, and early intervention services providers.

Perkins loans are similarly forgiven but in a slightly different manner.

Consolidation, deferment, forbearance

Loan consolidation is another repayment strategy that could help, creating a single monthly payment from two or more. Some consolidation loans also lower the minimum payment by extending the life of the loan to thirty years. The advantage is affordability on a monthly basis. The disadvantage is that the consolidation loan starts the clock over.

Deferments and forbearances allow you to stop making payments for a period of time. Interest continues to accrue, but for those who qualify, the government may pay the interest on a deferred loan. During a forbearance, if you don’t pay at least the interest each month, it will eventually be capitalized. That means the unpaid interest will be added to the loan balance, and then you’ll pay interest on the larger balance for the life of the loan.

Programs are not available to borrowers already in default. If you’re struggling, explore the StudentAid.ed.gov website and contact your loan servicer to discuss options before you stop making payments.

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Published August 10, 2016 Updated: December 1, 2016
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