If you borrowed money to pay for school, your first question might be how best to pay off your student loans. The short answer is that there's no magic bullet, but there are definitely things you can do to make paying back education debt easier. Student loan debt reached an all-time high of $1.6 trillion in 2022, so you're not alone. A growing segment of the economy is devoted to helping Americans figure out how to pay off student debt, and there's a lot to learn.
Start by reading this overview to understand the basics. Then learn about and consider various options, such as loan consolidation, loan deferment, or forbearance, and think about how you will work paying student loans into other financial goals, such as saving for a down payment on a home. There are even plans that allow for loan forgiveness, as you'll see below. Now, review these nine tips to help you get a handle on your student loans—and even pay them off faster.
- Know how much you owe, to whom it's owed, and what your monthly payment and interest rate are for each loan.
- Find the best repayment schedule—one that's either fast or slow—for your situation.
- Consider making payments during your grace period—toward the total loan amount or at least the interest due. Note that interest on student loans from federal agencies and within the Federal Family Education Loan (FFEL) Program has been temporarily suspended through Dec. 31, 2022.
- Look into payment options that can whittle down your debt, such as paying more each month or making bi-monthly payments, setting up autopay, and applying windfalls such as bonuses, tax refunds, or cash birthday gifts to the principal.
- See if consolidating or refinancing your loans will lower your interest rate and speed up the payoff of your loans.
1. Know What You Owe
The first step in repaying student debt is knowing what you owe. If you haven't done this yet, take the time to figure out:
- The total amount you owe on all of your loans
- Which student loan servicers you owe money to and the amount of each loan
- Which of your loans are federal and which are private
- The minimum monthly payment for each loan
- The interest rate for each loan
Once you've done this, you can move on to the next step, which is choosing a repayment plan.
2. Evaluate Student Loan Repayment Options
How you repay your loans depends on three things: the type of loans you owe, how much you can afford to pay, and your money goals.
"Financial goals are different for everyone," says Joseph DePaulo, CEO and co-founder of College Ave Student Loans. "Some may want a longer repayment plan that allows more flexibility in their monthly budget, while others may opt for a repayment plan that allows them to pay off their student loans as quickly as possible."
There is a range of student loan repayment options to consider. If you need flexibility and you owe federal student loans, you might look at an income-driven repayment plan. There are several choices that calculate your monthly payment based on your income and household size and allow you more time to repay your loans than you'd get on a standard 10-year repayment plan.
Income-driven repayment plans can offer loan forgiveness after a set number of years, but any forgiven loan balance may be treated as taxable income.
On the other hand, if you want to repay your loans as quickly as possible, you might want to stick with a repayment plan that has the shortest term. The trade-off is that you'll have a higher monthly payment. The best way to evaluate loan repayment options is to use a loan repayment calculator, such as the one offered by the Department of Education.
3. Use the Grace Period to Your Advantage
Whether you have a grace period and how long it lasts with private student loans depends on the lender. The grace period is the time frame in which you aren't required to make payments on your loans.
With federal student loans, the grace period typically lasts for the first six months after you leave school. With private loans and unsubsidized federal loans, keep in mind that interest is still charged during your grace period and will be capitalized—added to the total amount you owe—after the grace period ends.
One way to make the grace period work for you is to make advance payments against your loans. Paying down some of the principal means less interest that accrues later. At the very least, try to make interest-only monthly payments in the grace period to cut down on what you owe.
Note that interest on student loans from federal agencies was temporarily suspended through Dec. 31, 2022, which should help reduce the total amount you owe when you graduate. This relief was also extended to loans in the Federal Family Education Loan (FFEL) program. Even with federal loans, it still makes sense to try to pay down federal loan principal during this period.
4. Consider Consolidating or Refinancing Student Loans
Consolidating and refinancing offer two ways to streamline student loan repayment. With debt consolidation (or student loan consolidation), you combine multiple loans together at an interest rate that reflects the average rate paid across all of your loans. This can be done with federal student loans to merge multiple loans (and monthly loan payments) into one.
You can refinance federal and private loans together into a new private student loan, but doing so will cause you to lose certain federal loan protections on your federal loans, such as deferment and forbearance periods.
Refinancing is a little different. You're taking out a new loan to pay off the old loans, so you still end up with one monthly payment. But if that new loan has a lower interest rate compared to the average rate you were paying across the old loans, you could save some money—provided you don't extend the term. One thing to note about refinancing private student loans is that you'll need good credit to qualify, which may necessitate bringing a cosigner on board.
Be very careful to avoid student loan scams, which are particularly prevalent if you try to refinance your loans or investigate loan forgiveness.
5. Pay Your Loans Automatically
Late payments could hurt your credit score. Scheduling your loan payments to be deducted from your checking account automatically each month means you don't have to worry about paying late or damaging your credit.
You could also score some interest rate savings if your lender offers a rate discount for using autopay—federal loan servicers and many private lenders do. The discount may only be a quarter of a percentage point, but that can make a difference in how quickly you pay off the loans over time.
6. Pay Extra and Be Consistent
One thing that can slow down your student loan payoff is paying only the minimum due. Joshua Hastings, the founder of the personal finance blog Money Life Wax, was able to pay off $180,000 in student loans over a three-year period by taking a focused approach, which included paying extra on his loans every month.
In August 2022, President Biden announced student loan relief for eligible borrowers. Individuals whose income is less than $125,000 ($250,000 for couples) and who received a Pell Grant at school are eligible for debt cancellation up to $20,000. For those that did not receive a Pell Grant, they are eligible up to $10,000.
If you're able to pay extra, you may want to target one loan at a time while paying the minimum on everything else. The question is, do you use the debt snowball method or the debt avalanche?
"When deciding which student loan to pay off first, it's best to go with the one that can free up cash flow quickly. That way you can have more money to throw at the next loan," Hastings says. "As you grow your cash flow, it's a good idea to transition to the high-interest loans."
7. Apply 'Found Money' to Loan Balances
Found money doesn't necessarily mean the change you find between your couch cushions. But it does include money that isn't budgeted for as part of your monthly income. Using found money is another way to gain traction with student loan repayment. This includes:
- Tax refunds
- Annual salary bonuses
- Income earned from a side job
- Cash gifts you receive for birthdays or holidays
You can apply these amounts to your loan principal to take out a chunk of your debt in one go. Other opportunities to use found money to pay down loans quickly include inheriting money from relatives or receiving a settlement as part of a lawsuit.
The American Rescue Plan passed by Congress and signed by President Biden in March 2021 includes a provision that student loan forgiveness issued between Dec. 30, 2020, and Dec. 31, 2025, will not be taxable to the recipient.
8. Look Into Forgiveness and Reimbursement Programs
Public Service Loan Forgiveness is designed to offer student debt relief for students who pursue careers in public service. You make a set number of payments while working in a public service job and the remainder is forgiven.
If you don't qualify for loan forgiveness, you may be able to get help with your student loans through your employer. Talk to your HR department about whether student loan reimbursement is available as an employee benefit and what you need to do to qualify.
In some circumstances, a debt relief company can assist you in negotiating lower payments or even partial debt reduction.
You may qualify for the Public Service Loan Forgiveness Program if you're a government, tribal government, or non-profit employee with federal student loans. Eligible borrowers may qualify for a limited PSLF waiver, which provides credit for previous periods of repayment. To see if you qualify, submit your forms before the Oct. 31, 2022, deadline.
9. Try Bi-weekly Payments
Another method you can try with paying off student loans is switching from monthly to bi-weekly payments. Similar to making bi-weekly mortgage payments, this tactic means you'll have to make one extra loan payment per year. You'll need to talk to your loan servicer to find out whether automatic bi-weekly payments are an option, but if not, you may be able to make additional principal payments at any time through your online account access.
The upside of making extra bi-weekly payments yourself, versus automatically, is that you can make the payments when it fits your budget and skip them if there's a month when you don't have the extra cash.
Is It Smart to Pay Off Student Loans Early?
Yes, if you can pay off your student loans early, it is a smart decision. Paying off your loans early means that they will cost less because you'll have to pay less interest over a shorter period of time. Also, having less debt can help in other situations, such as when you apply for a mortgage.
How Long Does It Take To Pay Off Your Student Loans?
The time it takes to pay off student loans will vary for every individual as it depends on the amount of the loans, the salary, expenses, and other financial aspects of the individual. Typically it takes 10 to 30 years to pay off student loans. The Standard Repayment Plan for federal loans is 10 years.
What Qualifies for the Student Loan Forgiveness Program?
To qualify for the student loan forgiveness program, you have to earn an income of less than $125,000 as an individual or $250,000 as a couple. If you qualify for that and had a Pell Grant at school, you are eligible for debt cancellation of up to $20,000. If you didn't have a Pell Grant at school, you are eligible for debt cancellation of up to $10,000.
The Bottom Line
Tackling your student loans proactively is key to paying them off sooner rather than later. There are plenty of ways to manage your debt more effectively, but the worst thing you can do is nothing.
"If you find you're having difficulty affording your federal or private student loan payments, don't ignore the problem or assume there are no options," DePaulo says. "Reach out to your loan servicers to discuss your situation and try to create a plan to get back on track."