- Around 44 million Americans have student loan debt.
- The average student loan debt for the class of 2017 was $39,400.
- Budgeting and student loan consolidation can be a huge help for people in debt.
So you’ve just graduated, or you’re about to, and it feels good to be finished with college or university. If you’re among the approximately 44 million Americans who have debt from student loans, however, you might want to address your student loan debt situation before getting too comfortable with your post-education freedom.
Here’s a step-by-step guide on how to pay off student loans effectively and efficiently, with tips from experts and two graduates who did it themselves.
Click to get the full student loans 101 rundown.
15 Steps to Paying Off Your Student Loans for Good
Follow these steps to pay off your student loans once and for all.
1. Calculate What You Owe
Find out what you owe on your student loans by visiting the National Student Loan Data System for details on your federal loans. You’ll need to key in your Social Security number, last name, date of birth, and your FSA ID, which replaced the PIN in 2015. And don’t despair if your loan is well into the five figures — the average student loan debt of the class of 2017 was $39,400 according to Student Loan Hero.
If you have private student loans, check with your financial institution for your loan details. If you’re unsure of which bank or finance company holds your loan, order your credit report for free at AnnualCreditReport.com and review your creditors to find out.
Make note of each loan’s balance and interest rate, plus required payments, or use an online student loan repayment optimizer tool. Knowing how much interest you’ll pay over the course of your loan should motivate you to find ways to pay off student loans faster so you’ll pay less interest.
Still in School? Best Back-to-School Sales at Amazon, Macy’s, Target and More
2. Refinance or Consolidate Loans
If you have more than one loan, it may be possible to consolidate student loans by refinancing and combining them into one. Talk with your lenders to figure out if this is one of your student loan repayment options.
A job and good credit can help you out in a big way. If you have both, “there are some very competitive options for refinancing both federal and private student loans,” said David Weliver, founding editor of Money Under 30, a finance blog. “I’ve seen variable interest rates as low as 2 percent when you enroll in automatic payments.”
Refinancing at a lower interest rate might reduce your required minimum monthly payment, explained Weliver. “So if you can continue to make your old, higher payment after refinancing, you’ll reduce the amount of time until your loan is paid in full,” Weliver said.
Read about federal loan consolidation at the Federal Student Aid website, and complete a Direct Consolidation Loan Application.
3. Research Alumni-Backed Student Loans
If federal or private lending consolidations won’t work for you, an innovative student loan consolidation option might give you another option. Some college alumni associations offer sponsored loans or can give helpful direction to affiliated lenders you can work with.
For example, the Wisconsin Alumni Association at the University of Wisconsin in Madison, Wis., is partners with Nelnet, a private lender, according to College Scholarships.org. The organization promotes its consolidation loan to alumni members and offers incentives including reduced interest rates and reduced fees for payments made on time and electronically, according to the scholarships site.
4. Create a Plan to Pay Multiple Student Loans
If refinancing student loans isn’t possible, decide which loans you’ll focus on paying off first. Each loan’s monthly minimum must be paid, but putting extra money such as a tax refund or gift money toward one loan means you can pay it off faster, then apply that payment to your remaining loan debt.
Some experts, such as those at the nonprofit The Institute for College Access & Success, recommend putting more money toward the loan with higher student loan interest rates. This makes sense because the higher rate charges cost you more than the low rate loans.
Other financial experts, like Dave Ramsey, however, suggest putting any extra money toward your smallest loan first, because it will be the easiest and fastest loan to pay off. Either way, put all extra payments toward one loan instead of spreading them out over many.
5. Sign Up for Automatic Payments
In the excitement of your new post-graduate life, don’t miss making your loan payments on time. Avoid extra charges and credit score hits with automatic payments to your student loans. If possible, schedule two half payments monthly on days that match your paydays.
Check your student loan agreement’s fine print or talk to your lender to see if you can make paying off your student loan cheaper or faster. Ask about:
- Making extra payments of any amount at any time without penalty
- Making payments online
- Adding student loan payments as a bill payment to simplify making extra payments
- Getting a rate discount for setting up automatic payments
6. Set a Payoff Goal Date
If you regularly make only the minimum student loan payment, it might take years to pay off your loan. Smart grads like Shannon Clark, a mother and blogger who runs GrowingSlower.com, choose a realistic payoff goal date and then create a plan to achieve it.
When Clark graduated with an architecture degree from the University of Idaho in 2007, she and her husband combined had about $60,000 worth of student loan debt.
By September 2013, Clark found that despite making the minimum payments for several years, she was still six years away from paying off the loans. “And my husband and I felt stuck at $22,000,” she said. She set a goal to pay off the remaining $22,000 of debt in 25 months, yet paid it off in just nine months — 16 months earlier than her self-imposed payoff goal date. The faster you pay off your loan, the more money you save in student loan interest.
7. Set a Budget and Cut Expenses
Setting a budget to track income and expenses can help you meet your student loan payment goals, especially when you can work backward from a target payoff date and see what it takes to get there. However, “we are not talking about scribbling a few figures on a napkin,” said Kendrick Wakeman, CEO of FinMason, which provides financial and investment portfolio assistance. “You need to get a detailed budgeting tool to help you develop a budget and, just as importantly, help you stick to it.”
Clark found an online budget was just what she needed. “I had been trying to budget for a long time because my husband and I wanted me to stay home with our kids,” said Clark. “So, I signed us up to Mint.com to help automate our budget.”
Once your budget is in place, take a long hard look at ways to cut expenses — and like Clark’s family, expect to make some sacrifices. Clark found several ways to slash her family’s grocery and household bills, including:
- Meal planning for the week to cut down on wasted food
- Price comparisons between stores online and local grocery stores
- Picking your own produce during peak season for a reasonable price, then freezing or canning the food for the rest of the year
Once you’ve figured out how much extra you can shave off your expenses, increase your automatic student loan payment — or add an extra one — to include your savings and pay off your loan faster.
8. Move Home or Get a Roommate
Getting a roommate is not for everyone, but rent often makes up your biggest monthly expense, especially in a big city. The most expensive median rental price for a one-bedroom apartment was in San Francisco at $2,458 per month, according to the August 2018 National Rent Report from Apartment List.
Save that much on rent by living with your parents or a roommate, and you’ll have a huge sum to dump into loan payments and — if you choose — to invest as well.
If moving home isn’t an option, get a roommate or two, like Joe Mihalic, a Harvard grad who paid off more than $90,000 in student loans in just seven months. Mihalic found two roommates on Craigslist to help pay his rent.
9. Postpone Big-Ticket Buys
Half the fun of playing post-college adult is spending like one: vacations, big screen TVs, a new car. But if your spending is taking up half your budget or more, consider cutting back to funnel more money into your loan balance. As one financial expert put it, material possessions can’t buy happiness, but getting out of the debt jam can.
“I’ve found people with less live less stressful and happier lives,” said Michael Chadwick, president and founder of Chadwick Financial Advisors, which offers financial advice. “They’re not trying to substitute physical possessions for personal happiness.”
During 2011, Mihalic made some difficult choices to avoid big expenses, including forgoing a visit home for Christmas, and to attend two weddings. Mihalic was so committed to his mission to pay off student loans that surprisingly, the losses were easier to bear than one would think.
“I was in such a state that I didn’t care so much about the loss,” he said. “I just wanted to be debt-free.”
10. Sell Your Stuff Online
Make extra money to pay down your student debt by selling things you don’t use. Textbooks, clothes, sports equipment, home electronics and small kitchen appliances might be good choices to sell in local online classifieds or Facebook “for sale” groups.
Mihalic discovered that letting go of stuff was a liberating experience. He sold one of his cars, a motorcycle, bike and other sundry possessions he thought he could never live without. “You don’t notice that you’re missing the toys,” he said.
Craigslist is a popular site to sell items online and make money to put toward your student loan debt.
11. Get a Side Hustle
The average salary for 2017 college graduates was just over $50,000, according to consulting firm Korn Ferry, so a part-time gig might be what you need to make a big dent in your debt. “Increasing your income is the fastest way to earn extra money you can use to accelerate paying off student loans,” said Weliver. Yet sometimes a “side hustle” doesn’t look like a traditional second job — it might mean taking on freelance work or starting a business.
When Clark got serious about paying off her student debt, she knew she had to increase her income, so she set new goals and took on more projects.” I gave up sleep to grow my blog and do more architecture projects,” she said. Clark also opened an Etsy store — “I did anything I could to make more money and put it all toward our debt,” she said.
Mihalic also got creative to boost his income. He started a landscaping business with a friend and worked as a “human chariot,” driving a pedi-cab through the streets of Austin. In addition, Mihalic started a blog, No More Harvard Debt, chronicling his newly frugal lifestyle changes while keeping a running, monthly progress report on his debt paydown. By March 2012, Mihalic paid down the last of his Harvard loans, which totaled almost $91,000.
12. Join the Peace Corps or AmeriCorps
This isn’t a suggestion to skip off to Micronesia to duck your loan payments, but a number of loan programs through the Peace Corps can cut your balances significantly, even as you see the world and get your living expenses covered. With a Perkins loan, for example, you might be eligible for up to 70 percent cancellation. And depending on the type of loan you have, you may be eligible for income-driven repayment or student loan forgiveness.
If you are in an approved AmeriCorps program, your student loan may qualify for forbearance. While interest might accrue on loans in forbearance, if you successfully complete your term of service and your loan qualifies, the National Service Trust may pay all or part of the interest that accrued while you served.
13. Explore Public Service Loan Forgiveness Programs
Employees of federal, state, or local government organizations or graduates working for a tax-exempt nonprofit, also known as a 501(c)(3), might have another option to pay off student loans faster. The federal government’s Public Service Loan Forgiveness Program forgives the remaining balance on your Direct Loans. But if you want to take advantage of PSLF, keep in mind that you first need to make 120 qualifying monthly payments. That’s a full 10 years of payments.
Find Out More: How to Qualify for Student Loan Forgiveness Programs
14. Ask Your Employer
Before assuming your boss or human resources director will laugh you out of her office, keep in mind this might work out well for your employer as well. After all, helping staff with hefty student loan payments is one way for them to keep top talent. As CNBC reported in May, hundreds of companies are now helping their employees pay off student loan debt.
Suggest this during salary negotiations to make it become part of your compensation package.
15. Get Additional Student Loan Debt Assistance
Paying off student loans is a large task and sometimes life gets in the way. If your income is simply too low to pay your student loans or you were recently laid off, act immediately to get help with your federal loans by finding out more about income-driven plans.
The current four federal student loan repayment plans include the REPAYE Plan, the PAYE Plan, the ICR Plan and the IBR Plan. Depending on your income and the program, your payments may be reduced to between 10 and 20 percent of your discretionary income. Keep in mind that reduced payments might mean it takes between 20 and 25 years to pay off your loan, though outstanding balances at the end of your repayment term might qualify for loan forgiveness so you don’t have to pay it off.
As with most financial decisions, knowledge is power when it comes to paying off student loans. Mihalic suggests students educate themselves about student loans and the dangers of debt.
“We’re asking students these days to spend a lot of money on something they don’t know anything about,” he said. “I think the overall message is there are less risky ways to go about this.”
Clark said the key to paying off student loans sooner is to take action now.
“The biggest thing would be to get started,” she said. “Try paying off your smallest loans first because having that taste of success motivates you.” Clark said to stick with your financial plan and remember that your sacrifices are temporary. “You have so much more freedom once you are debt-free.”
Click to keep reading about creative new ways to pay off your student loans.
More on Student Loans
- 20 Companies That Help Employees Pay Off Student Loans
- Navient Student Loan Lawsuits and Information
- 8 Best Student Loan Repayment Plans