How To Pay Off Student Loans

Those late night study sessions, group projects with the one guy who never does anything, and Burgerama Thursdays (shoutout to The Riv) are all long gone but the one piece of college that clings on to you like your first girlfriend remains. Her name is student loans and she holds back your financial growth. 

So just pay off the loans and they'll be gone, right? Eh, sure, that is one method. Here are a few shortcuts that just may get you to greener pastures quicker. 

Understand if you are eligible for loan forgiveness

There are certain careers that offer federal student loan forgiveness as a benefit. Most of these careers in the public service sector including teachers, government employees, working for a nonprofit, working in a medical field, or if you have a disability. There are certain criteria that may need to be met and limits on how much of your loans will be forgiven. Take a look at the student aid website to see if you qualify.

You will likely need to fill out an application and meet certain criteria but this can be a great way to be rewarded for your public service career choice. 

Create a Budget and Payoff Plan 

You came to this blog hoping for some magic formula on how to pay back your loans but you are met with the same topic no one likes to discuss but is essential to paying off debt; you have to be spending less than you make. Simple enough but anyone who has walked into a Costco or car dealership knows the feeling of dropping a bunch of money quickly. 

Start by understanding your current expenses from the last year or so. This is easily accomplished by using an app (I like Mint) that will automatically categorize those expenses. From there, scrutinize your spending. It has been trendy to point out the savings from not buying a $5 coffee each day at work but I tend to look at the bigger ones. Are you eating out a lot? Could you pay less for rent? have you gotten updated quotes for your auto insurance? Could you downsize your newer car for something a high schooler would drive (my daily cruiser was a station wagon. RIP Wheeley Wagon).

Will this be enjoyable? No. Will you get used to it? Probably not. But it isn't forever. It is just until you get out of your hole. Focus on how great it will feel to be done with the debt and move on to more enjoyable goals. Honestly, you might even miss your Hoopty (look it up kids). 

Increase Your Income

So you've brought your expenses down to the essentials and are still barely making gains on your debt situation? Now look at the other side of the equation to see what can be done to increase your pay and have a bigger shovel to dig with. 

Let's start with your current job. There has not been a better time in recent memory to be a job seeker. There are lots of industries where demand exceeds the supply of workers. That means for once you can actually tell your boss to shove it. There are too many career options to be able to go into much detail but the easiest way for me to explain the opportunity is state that switching companies is easily the most consistent way to increase your salary. Looking for proof? Look here and here. Head hunters aren't going to show up at your doorstep begging you to come over. Start a LinkedIn profile, scour the job boards, and utilize your network of family and friends to see what company may be a good fit. Persistence is the key. Apply, apply, apply. Brush up on your interview skills. 

Are you in a career path that makes it difficult to switch companies? Just as the car dealer told me yesterday, "you have options." (Sorry for all the car analogies. We are in the market for a new van so they have been front of mind.) Enter in the side gig. The limitations on creating a way to earn extra income are only those you place on yourself. I know of people who detail cars, sell cattle, clean houses, repair cars, fix up houses, deliver pizzas, or sell crafts online. It goes on and on. Find something you like to do and then brainstorm a way to monetize it. The cool thing about side income is that you don't have to depend on it for your bills so there is no pressure on how many hours to devote or how much you need to bring in. 

Pay More Than The Minimum Payment

I know this seems obvious but I think human nature for some (most) of us is to do the bare minimum in situations we don't want to be in. The truth is minimal effort achieves minimal results. Start with an extra $10 each month and build from there. Change your mindset from "this is how much I have to pay each month" to "this is the max I can afford to pay each month. 

Understand Repayment Plans (for Federal Loans)

The government continues to institute new methods for borrowers to repay their student loans. I will again urge you to go to the government's student loan website here to find which of these plans you qualify for and which one will bring you the most benefit.

For now, I will do my best to give a brief overview on some of the different plans. 

Standard Repayment Plan - payments are the same each month until your loan is paid off in 10 years. You will usually pay less over time with this plan.

Graduated Repayment Plan -  Payments start out lower and then gradually increase as you continue to pay on them. You will pay more in interest than in Standard Repayment Plan. 

Extended Repayment Plan (for those with more than $30,000 in loans) - this plan gives you a longer time horizon to pay off your loans (25 years) than other plans. You can choose either the fixed or graduated method for payment. 

Saving on a Valuable Education (SAVE) Plan (formerly the REPAYE Plan) - Monthly payments of 10% of discretionary income. Payments recalculated each year

Pay As You Earn Repayment Plan (PAYE) - monthly payments of 10% of discretionary income but never more than what you would pay under Standard Payment Plan. Payments recalculated each year. 

Income-Based Repayment Plan (IBR) - monthly payments will either be 10% or 15% of your discretionary income (depends on when you received the loans) but never more than what you would pay under Standard Payment Plan. Payments updated each year. Any loan remaining after 20 or 25 years will be forgiven. 

Income-Contingent Repayment Plan (ICR) - monthly payment will be the lesser of 20% of discretionary income or amount you would pay on fixed income plan over 12 years, according to income. Payments are recalculated each year. Any loan remaining after 25 years is forgiven. 

Income-Sensitive Repayment Plan - monthly payment based on annual income. Loan will be repaid in 15 years. Formula to determine payment differs from lender to lender.

Utilize the Debt Snowball or Debt Avalanche

When it comes to paying off multiple loans, utilize one of these methods:

Debt Snowball - list your debts out and sort them from smallest to largest by dollar amount. You make minimum payments on all but put any extra cash towards the smallest debt. Once it is paid off you move to the next smallest debt until all debts are paid off. This method has a psychological edge by eliminating individual debts quicker but does pay more interest over time than the debt avalanche. 

Debt Avalanche - list your debts out and sort them from smallest to largest by interest rate. Make minimum payments on all but put any extra money towards the debt with the highest interest rate. Move on down the line after each one is paid off until complete. This method will minimize the amount of total interest you will pay but will require more willpower to stay motivated.

Devote Any Pay Raise To Additional Payments

A simple but effective way to build momentum is any time you get a pay increase or influx of cash (such as your tax return), devote the additional cash towards you student loans. This will help to avoid lifestyle creep as we all like to buy that special reward for all your hard work. Don't feel as if you have to do this forever, just until you pay your loans off and then go buy those new Jimmy Choo shoes (full disclosure - I have no idea what these shoes are but some corporate executive mentioned once how much they love them and how expensive they were. It stuck with me because it sounds like a cartoon character.)

Track Your Progress

We are humans and we like dopamine dumps. While you could jump onto Instagram and watch another reel (I am old so I don't use TikTok), why not get your buzz off reviewing your monthly progress on your loan repayment? You can either Excel spreadsheet it or use an app, Either way give yourself credit for a job well done each month on your path to being debt free. The journey might not be the most fun but it beats letting student loans feel like an anchor holding you back.