This fictional story is one example of a student loan repayment strategy. Everyone’s situation is different, and there is no single approach that works for everyone. Consider working with a financial representative to help find a strategy that fits your needs. The information in this article is for illustrative purposes only.
Student Loan Debt Today
Student loan debt continues to impact many young adults. The student loan debt has risen for the past few years, and currently totaled at $1.78 trillion.1
Lauren understands this all too well. Eight years ago, Lauren graduated from college with a marketing degree and $25,000 in student loans. Starting out with very little in her early 20s, while also financially transitioning to adulthood, meant that just thinking about how to pay off student loans was a tall order.
Still, Lauren stayed focused on paying off her loans. She created a plan and followed it over time. After eight years, she paid off her balance. Today, she is debt-free.
Here is how Lauren paid off her loans before turning 30, and how you may be able to apply similar steps.
Tallying Student Loan Debt
Lauren knew she needed a clear view of her debt before making a plan. She started by calculating exactly how much she owed.
First, she separated her loans into two categories: federal loans and private loans. This made things easier to understand since each type has different repayment options.
Understanding Loan Types
The three major types of federal loans include:
- Stafford Loan
- Federal Perkins Loan
- Federal Plus Loan
While the government issues federal loans, banks, credit unions, schools and state agencies issue private loans. Lauren took note of the interest rate, compounding schedule and the total amount for each of her loans and then evaluated different repayment plans.
Federal Repayment Plan Options
Lauren explored several repayment plans available for federal loans.2 Each plan has eligibility requirements based on loan type, income, and total debt. Lauren was eligible for some of the repayment plans offered, including:
| Repayment Plan | How It Works |
|---|---|
| Standard Repayment Plan | Fixed monthly payments over 10 years |
| Graduated Repayment Plan | Payments start lower and increase over time, typically paid off within 10 years |
| Revised Pay As You Earn (REPAYE) | Monthly payments are 10% of income and updated each year based on income and household changes |
| Income-Contingent Repayment (ICR) | Payments are the lesser of 20% of discretionary income or a fixed amount over 12 years |
What About Private Loans?
These repayment plans cover federal loans. However, for private loans, repayment plans can vary by lender because different lenders offer different loans. If you have private loans, consider checking with each of your private lenders to determine the terms and conditions.
Opting for Public Service Loan Forgiveness & Loan Consolidation
If you work for a government organization or nonprofit, Public Service Loan Forgiveness (PSLF) may be an option.3 With this program, your remaining loan balance can be forgiven after 120 qualifying monthly payments while working full time for an eligible employer.
Because Lauren worked for a private employer, she did not qualify for the PSLF program. After reviewing her options, Lauren chose the Standard Repayment Plan. This plan also allowed her to make larger payments than the required amount when she had extra income.
Lauren also decided to consolidate her private loans. After consolidating, she only had to make one monthly payment to a single lender. Consolidation may lower your monthly payment or interest rate. Paying less interest over time could reduce your total loan cost. You can consolidate your federal loans, private loans, or both. Lauren chose to consolidate her private loans.
By consolidating her private loans and using the Standard Repayment Plan for her federal loans, Lauren paid off her debt ahead of schedule. Like Lauren’s approach, your repayment strategy will depend on your income, monthly budget, financial obligations, and long-term goals.
Contributing Extra Money to Student Loan Debt Payments
Whenever you get a tax refund, a holiday or birthday cash gift, a bonus at work, or an unexpected windfall, you may want to consider putting all or part of it toward your student loan debt.
Lauren followed a “50/50” rule. Each time she received a tax refund or extra cash from a birthday, she put half toward her student loan debt. She used the other half however she wanted, usually adding it to her rainy day fund or her retirement account.
Taking Advantage of a Side Hustle
Side hustles can help you earn extra income. While working full time, Lauren took on different side gigs whenever she could. She looked for options that were simple and, ideally, ones she enjoyed. Pet sitting, test proctoring, and completing online surveys all helped her bring in extra money to pay down her student debt.
Using a similar approach may help you pay off student loan debt faster. It can also reduce the total interest you pay over the life of the loan.
Understanding the Emotional Journey
Paying off student loans can feel like a big challenge. Rewarding yourself when you reach milestones can make the process more manageable. For example, every time Lauren paid off $500, she treated herself to dinner at her favorite deep dish pizzeria or taqueria. For every $1,000 milestone, she bought a clothing item from a discount retailer.
After college, Lauren realized it is normal to feel emotional while paying off debt. Your money goals often connect to your life goals, so progress in one area can affect how you feel overall. When Lauren paid off her student loans after eight years, she felt a strong sense of joy and relief.
Final Thoughts
It can be challenging to pay off student loans, but it can help to break the process down into more manageable pieces. By making her own debt a priority, Lauren was able to eliminate it within a reasonable time frame. Whether by earning extra income, putting cash gifts or bonuses toward your debt or cutting back on expenses to save more, it's possible that you can pay off your student loans in less time, too.
Sources
- Total Student Loan Debt. https://educationdata.org/total-student-loan-debt.
- Federal Student Loan Repayment Plans. https://studentaid.gov/manage-loans/repayment/plans.
- Student Loan Forgiveness. https://studentaid.gov/manage-loans/forgiveness-cancellation#ways-to-qualify.
