The Best Way to Pay Off Student Loans (In 7 Simple Steps)

By: Rita Cunha | December 1, 2020

There’s no denying it: student loan debt plagues 20- and 30-year-olds now more than ever. In total, Americans owe a whopping $1.5 trillion in these loans—and that number just keeps rising.

Most students graduate with at least some debt to their name. Doctors, dentists, lawyers, and grad students can sometimes rack up six figures in debt. With all that, you have to wonder, how can anyone pay it all off?

In fact, many borrowers have no idea how to go about paying off student loans. The amount they owe seems so impossibly high that even just thinking about it is overwhelming. But it doesn’t have to be.

If you come up with a sound debt repayment plan, you can be free from this financial burden. That’s what we’re here to help you with. In this article, we’ll lay out the best way to pay off student loans. Get a pen, some paper, and take notes—this advice is free.

Step 1: Find Out If You’re in the Grace Period

If you’re still in school or have recently graduated, you may not have to make a single monthly payment (for now). Most federal student loans and some private loans have a grace period. It can last anywhere between six and twelve months.

Contact your student loan servicer to learn if you’re still covered by the grace period. If you are, great! Your loans will likely not start accruing interest just yet, which buys you time to get organized.

But don’t think of it as your last care-free months before lenders come knocking on your door. Instead, draw up a debt repayment plan and start saving for your first payments. You’ll save yourself a headache and financial stress down the line.

Step 2: Understand Your Student Loan Debt

Managing student loan debt is incredibly hard if you don’t get organized. You need to know exactly what you’re paying, who you’re paying, and when you have to pay it. Otherwise, it will seem like your student loan balance just isn’t going down.

It’s recommended that borrowers keep tabs on their loan repayment journey. We’ll get more into that, but just know that this applies to those with private student loans and loans from the federal government. Plus, it’s really not that hard to put together in a spreadsheet or journal entry!

List All Your Loans

Start by making a list of every loan you’ve ever taken out. For example, it could be a combination of private loans and federal PLUS loans. Make sure to be thorough and include every lender you will need to repay.

Jot Down How Much You Owe

Then, include a column for how much money you still owe them. It makes the repayment process a lot more encouraging since you can see that number go down.

Write Down Each Loan’s Interest Rate

Student loan interest rates can vary wildly from lender to lender. It’s wise to include a column with the interest rate for each loan you got. This will help you figure out the best way to pay off student loans—more on that in step 6.

Figure Out Your Minimum Monthly Payment

Lastly, don’t forget to jot down what your minimum monthly payment is for each loan. You will need to include these in your budget. If you don’t meet these student loan payments, you’ll get into trouble.

Step 3: Research If You Qualify for Student Loan Forgiveness Programs

There are student loan forgiveness programs in place to help you shed your debt. If you make it past the hurdle of qualifying, you’ll be all paid off in ten years or less. In some cases, you may not even have to pay back the full amount.

Working in Public Service

Having a public service job comes with perks and public service loan forgiveness is one of them. If you work for the government or a non-profit, you could shed your debt in ten years. It doesn’t matter whether you’re a full-time or part-time employee, as long as you meet the thirty-hours-a-week requirement.

What you have to do is simple: make consistent payments toward your federal student loans every month. Those payments can even be adjusted to your income, so you’re always getting a good deal. After ten years, you can move on with your life—even if you didn’t technically pay it all back.

Contact your human resources department to see if you qualify.

Active-Duty Military

Several branches of the military also offer a College Loan Repayment Program. If you enroll for a certain number of years, part of your loans will be forgiven. For instance, if you join the National Guard for at least six years, you could get up to $50.000 in debt wiped off.

Company-Backed Debt Repayment

Some companies will throw in extra benefits when hiring talented employees. Sometimes, they’ll help cover student loan payments. If you’re looking for full-time employment, it might be a good idea to research what companies are offering these perks. These are competitive jobs, but it’s worth a shot.

Step 4: Map Out Your Budget and Expenses

Having a monthly budget is always good. It keeps you on track to meet your personal finance goals while allowing for flexibility. So it only makes sense to have a sound monthly budget when you’re on a student loan repayment journey.

Start by writing down how much you make every month after tax. Secondly, map out all your essential expenses—rent, insurance, car loan payments, food, and so on. Then, make room for saving at least 20% of your take-home pay for emergencies.

What’s left of your income could go toward entertainment but most should be put towards paying back your debt. This includes credit card debt (if you have any) and your student loans. How much room you have for it in your budget will affect your repayment strategy.

Step 5: Create an Aggressive Loan Repayment Plan

Taking an aggressive approach to paying back student loans is the best method. Let’s go into how you can make that happen.

Going Above Minimum Payments

By far the fastest way to pay off student loans is to pay more than your minimum payments. These extra payments will eat away at your debt faster. Not only will you be done paying sooner, but interest will also not accrue as quickly. This will save you money in interest.

Paying Off High-Interest Loans First

The avalanche tactic is the cheapest way to pay off student loans. Pay your loans with the highest interest rate first and then worry about those with a lower interest rate. This way, you won’t be charged as much in interest overall. Follow this strategy (instead of the snowball tactic) and you’ll have extra money in your pocket years down the line.

Stick to Each Loan’s Due Date!

You won’t easily shed your debt if you don’t make payments on time. It doesn’t matter if the loan has low- or high-interest rates: miss the due date and you’ll be in trouble. Keep a journal or spreadsheet as a debt tracker and use it religiously.

Sign Up for Autopay

You can set up autopay to avoid accidentally defaulting on your loan. These automatic payments make paying off your debt a little easier. Some student loan services will even lower your interest rate slightly just for setting it up!

Set Aside “Windfall” Money

Financial windfalls happen sometimes and they can feel like free money. If you’re still paying back your loans, consider not spending your tax refund on a “treat yourself” gift. Instead, why not put it down as a student loan payment?

Step 6: Taylor Your Lifestyle to Your Budget and Debt Payment Plans

We’ve reached the part we all know about but hate bringing up: living within your means. It’s certainly easier said than done, but it’s also a crucial part of life. Take a good look at your bank account, monthly budget, and debt spreadsheet and decide what kind of life you can have while still meeting all your payments.

Cut Out Unnecessary Expenses

The first thing you can do is cut out unnecessary expenses. How often do you watch cable? And how much joy do those fancy subscription boxes and packages bring you? Can you see yourself living without them? If you answered yes, unsubscribe and put that money aside.

Prioritize Free Things for Entertainment

Repaying student loans shouldn’t mean not doing fun stuff anymore. Luckily, there are a lot of ways to save money on entertainment. You could use the library instead of buying new books. Or go to museums on days when the admittance fee is zero. Get creative!

Become a Pro at Coupons and Discounts

Couponing can save you a ton of money in the long run. When you’re ordering online, Swagbucks will help you find discount codes in record time so you can get what you need at a bargain price. If you were going to buy an item anyway, why not get it for cheaper?

Cook at Home More Often

Take-out is delicious but not that great for your wallet. If you cook at home most of the time, you’ll save a ton of money. Don’t believe it? Look at your bank account and calculate how much you’ve spent in the last month on coffee-to-go and on dining out. That’s money you could put toward paying off your debt.

Get Additional Income Streams

If you don’t want to sacrifice anything, it’s a good idea to get a side hustle. The extra payments will help you cover whatever bills you have to pay. For instance, you could deliver food locally if you have a car or bike. Or you could make money answering surveys from the comforts of your home with sites like Swagbucks.

Step 7: If All Else Fails, There Are Still Alternatives

If none of this worked, don’t give up. Sometimes, paying off the loans you have with the terms they came with seems impossible. It isn’t and you still have some options.

Forbearance for Your Loans

If you’re having a hard time making payments, forbearance may be the way to go. Your payments will be put on hold temporarily. This gives you time to find a way of making extra money without defaulting on payments. Disclaimer: interest will continue accruing during this time. Your federal or private lender will be able to tell you if you qualify for forbearance.

Apply for Deferring Your Debt

Deferment might be a slightly better path to take. If you qualify, your payments will be put on pause while you find work or go back to school. The upside is that interest doesn’t keep piling up. Plus, if you can’t find work or are still having a hard time making ends meet by the time deferment ends, there are federal programs to help you.

Consolidate Your Student Loans

Forgetting to make a payment on one student loan happens—especially if you’re juggling many loans at once. It still has bad consequences, though. Through consolidation, you can make your payments more manageable.

Consolidating your loans will bundle them together. Thus, you can turn five payments into one. Your lender will recalculate your loan terms and new interest rate. If you’re lucky, you could end up saving money when negotiating your consolidation.

Refinance Student Loan Payments

Student loan refinancing can also be a good option. When you refinance, a lender buys all your other loans and sells you a new one. You will be able to negotiate the new loan terms to your advantage. This means you could get a lower interest rate and a more comfortable repayment term.

Not everyone should refinance their loans. If you have a good credit score and a stable job, go ahead and apply. But if you’re not that financially secure, you probably want to hold off on refinancing. The same goes for refinancing private and federal loans together, as you’ll lose federal protections that could come in handy if things go south.

All in all, repaying student loans is by no means impossible. It may seem like an insurmountable obstacle now, but once you’ve put what we’ve outlined into practice, you’ll see how manageable it is. Don’t lose hope and be consistent. You’ll reach the finish line soon enough.