Last Updated on January 16, 2023
Student loans are a reality for many people. If you’re struggling to pay off your student loans, here’s how you can get a handle on them.
First, make sure you know how much you owe and what interest rate the lender is charging. You can use this information to figure out what your monthly payment should be, but don’t worry about that just yet—we’ll get to it later. For now, just know that your first step is to find out how much money you have left on your student loan balance.
Once you know what you owe and what interest rate the lender is charging, figure out what kind of repayment plan might be best for your situation. Some people prefer to pay off their debt quickly by making large payments every month; others prefer a more flexible plan that gives them freedom in choosing when and how much they pay each month (they sometimes call this “graduated repayment”). The best option for you depends on things like whether or not there will be other expenses coming up soon (like buying a house), how much extra income is available right now, etc.
How To Pay Off Student Loans
Higher education can be costly. Credit.com states the average student has roughly $31,000 in debt after graduation. It is important to determine how much student debt you have prior to graduation. It can help you better understand the type of repayment plan you need to have. Below are 7 ways to start paying off your student loans, even while you are still in college.
1. UNDERSTAND HOW YOUR STUDENT LOAN DEBT WILL AFFECT YOUR FUTURE
If you haven’t started repaying your college loans yet, it can be hard to imagine how they could impact your income and lifestyle. Are you going to be able to make enough money to cover your loan payments and support everyday living expenses?
You’ll get some ideas about repaying your student loans by looking at a student loan repayment calculator like 1st Financial Bank USA’s Student Loan Repayment and Affordability Calculator. Student loan repayment calculators show your estimated loan payments based on your interest rate and term length of the loan. These calculators help you determine how much of your future salary will go toward your loan payments, and can give you an excellent reality check, preventing you from over-borrowing in college.
2. START MAKING STUDENT LOAN PAYMENTS WHILE YOU’RE STILL IN SCHOOL
It may sound impossible to make loan payments while you’re still a college student and not earning a significant income. However, any amount you can put toward your student loans will reduce your debt and help you form responsible saving habits in the long run. If you don’t have other necessary expenses to pay for, use money you earn from a part-time job or other odd jobs to start paying off your debt.
Federal unsubsidized loans and private loans accrue interest during college that will be added to your total loan balance. If you start paying down this interest as soon as possible, it can result in lower debt after graduation.
3. RETURN YOUR FINANCIAL AID REFUNDS
After your school receives your college loan disbursement from your lender, it will deduct tuition, fees, and other costs from your total bill. Then the remainder of the loan will be refunded to you. Your return can be used for expenses not billed by the university, such as off-campus rent, books, and supplies, if needed.
If you have money left over after covering these expenses, it can be tempting to spend it. Once you’ve spent your leftover money from the loan, you’ll have to pay it back with interest. Instead, return the refund to the lender within their specified time period (usually from 30-120 days) so you stay on track.
4. PAY DOWN HIGH AND VARIABLE INTEREST LOANS FIRST
It can be easier and faster to pay off student loans if you make more than the minimum payment each month. If you have multiple college loans with different interest rates, some financial experts suggest paying more than the minimum payment on your highest and variable interest rate loans and making the minimum payment on loans with lower, fixed interest. This strategy can help eliminate or reduce your most expensive college loans faster and protect you from variable interest rates that can raise your monthly payments.
5. WORK AND SAVE DURING THE “GRACE PERIOD”
Federal college loans don’t require students to start making payments until six months after graduation. This time frame is known as a “grace period.” Save as much money as you can during your grace period to put toward your loans, especially if you land a job right out of college.
6. SET UP AUTO-PAY
Having your student loan payments automatically deducted from your bank account will prevent you from missing payments and incurring late fees. Even better, some loan servicers offer an interest rate deduction if you sign up for auto-pay. Federal student loans, for example, offer a 0.25% interest rate deduction.
7. CHOOSE THE RIGHT STUDENT LOAN REPAYMENT PLAN
Look at all the repayment plans available and choose one that works best for your financial goals. Federal college loans offer several repayment options:
- The standard repayment plan sets up the same payment amount every month (with a minimum payment of $50). Unless you have decided to have a different plan, this standard plan is the one you will receive. Students on this plan must pay off their loan in 10 years.
- The graduated plan increases your payments every two years. Students must repay this loan within 10 years.
- The extended plan sets up either a fixed or graduated payment over a period of 25 years.
- The five income-driven plans allow payments to fluctuate according to your annual income, family size, and other factors. For example, the Revised Pay-as-You-Earn plan reduces monthly loan payments to 10 percent of discretionary income and forgives the remaining loan balance after 20-25 years of consistent payments.
how to pay off student loans in 5 years
How to pay off student loans in 5 years
The first step in paying off your loans is finding out your current student loan balance and interest rate. To get this information for federal student loans, you can check the National Student Loan Data System that’s run by the U.S. Department of Education, or log in to your online account on your loan servicer’s website.
If you have private student loans, you’ll need to contact your loan servicer(s) or log in to your online account for this information. The Consumer Financial Protection Bureau recommends reviewing your credit reports if you don’t remember who your servicer is. You can check your credit reports weekly for free through April 20, 2022, by visiting AnnualCreditReport.com.
Once you have your current balance and interest rate, plug the information into a student loan interest calculator to get an estimate of how much you’d need to pay monthly to achieve your goal.
Find out your payoff date
It takes about 21 years on average to repay student loans, according to a 2013 study by the One Wisconsin Institute. But since financial circumstances and loan terms vary, your student loan repayment schedule is likely different. For private student loans, you can find the payoff date by reading your loan term agreement or contacting the lender.
If you have a federal student loan, contact your loan servicer or check its website. You may have been assigned a repayment plan when you first started repaying your loan if you didn’t select one, so double-check the payoff date. With your payoff date and current balance, you can start making a five-year repayment plan.
Create a budget
A budget can help you determine whether you can afford to put extra money toward your monthly student loan payments. If you don’t have one, start by listing all your set expenses and streams of income. Review your spending over the last few months to see how much you’ve spent.
Next, separate your expenses into “wants” and “needs.” For example, a need can be food, but a want could be eating out at a specific restaurant each month.
Then, separate your expenses into categories and give each one an amount based on your current spending habits.
Here’s a list of budgeting tips and tricks you can use to stay on track.
- Use a budgeting app. Don’t feel like writing down your budget? Use an online budgeting software tool to automatically categorize and track your expenses.
- Download a budgeting template. If you prefer paper and pencil, consider printing out a monthly budget template to keep track of your expenses.
- Get a budget accountability partner. Although creating a budget can be easy, sticking to it can be hard. Ask a spouse, family member or friend to meet with you each month to review your progress.
- Automate your savings. If you’re looking for an easy way to save more money to put toward your loans, set up an automated transfer from your checking to savings account each month.
Reduce unnecessary expenses
To free up some extra cash to pay off your student loan debt in five years, find ways to cut expenses.
Here are some common ways you can reduce your spending.
- Get rid of cable. Canceling cable could potentially save you hundreds of dollars a year.
- Cancel your gym membership. If you cancel your gym membership and work out at home, you could free up some extra cash from gym fees. For example, if your gym membership is $65 a month, you could save $780 a year.
- Get a roommate. Your housing cost is likely your largest expense. If you love your home or apartment and don’t want to move to a cheaper place, consider sharing the costs with a roommate. If your monthly rent or mortgage payment is $1,600, you could save $800 a month if you split it two ways.
- Bike to work. Car ownership can be expensive. Between fuel costs, car insurance and repairs, you can spend thousands of dollars. To reduce these expenses, consider biking to work, if it’s an option.
- Use your local library system. If you’re looking to trim your entertainment budget, visit your local library. Some library systems allow you to borrow movies and magazines for free. In addition, you’ll likely find free activities for adults and kids.
- Limit credit card use. It’s easy to swipe your card without thinking about how much money you have in your account. If you’re guilty of this, keep your credit card use to a minimum. This can also help you avoid multiple loan debts.
Make biweekly payments and enroll in autopay
Automatically paying your federal student loans gives you a discount and some private lenders also have an autopay discount. Although you’re only required to make one monthly payment, paying biweekly can be an easy way to put extra cash toward your student loan without much effort on your part.
For example, if you follow a monthly payment schedule, you’ll make 12 student loan payments a year. But if you switch to a biweekly payment schedule, you’ll make 26 half-payments, which equals 13 payments in a year.
Take up a side hustle
Boosting your income is another way to free up extra cash to pay off your student loans quicker. Start by looking for promotion opportunities at your current job. If you want to earn money faster, consider getting a side hustle. Here are some ideas.
- Drive for a rideshare service. If you own a car, consider driving for a rideshare company on the weekends or evenings to earn extra money. Ridesharing platforms give you the option to make deliveries if you’re not comfortable picking up people.
- Rent your car. Another way to earn money from your car is to rent it out while you’re not using it.
- Rent a spare bedroom. If you don’t want a permanent roommate and have an extra bedroom, you can earn money by listing it on a rental platform.
- Become a virtual assistant. Do you enjoy performing administrative tasks? Consider becoming a virtual assistant — someone who provides support for a business from a remote location. You can find jobs by searching online career platforms.
- Sign up to be a beta tester. If you love testing new apps, products and websites, sign up to become a beta tester through BetaTesting or test IO. You can earn up to $50 for every issue you find.
Consider refinancing your loan
Refinancing a private student loan involves taking out a new loan with a different interest rate and repayment term to replace your existing loan.
If you have good credit and a steady job, you might qualify for a lower interest rate. Choosing a shorter or similar repayment term could help you pay off your principal balance quicker and save on interest over the life of the loan.
Another benefit of student loan refinancing is that it can help you consolidate federal and private loans into one, making it easier for you to keep track of your loans. The downside of refinancing federal and private student loans into one is that you give up federal protections, so think carefully about whether this makes the most sense for your situation.
If you only have federal student loans, you may be able to combine them into one loan with a Direct Consolidation Loan. But you may not receive a lower interest rate than the one you’re currently paying — when you consolidate your federal student loans, your new loan will have a fixed interest rate based on the average of all the loans you’re consolidating.