I Want to Pay Off My Student Loans

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You don’t have to follow our checklist to pay off your loans.

But we figured you would want to save on interest payments, lower your stress level, pay your loans off sooner and just generally feel like you’ve got it under control. After all, education is expensive enough–you don’t need to be paying any more for it than need be.

Get organized.

Your first step is to know exactly how many loans you have and their total. (Maybe you want to pour yourself a glass of wine first … just a thought.) Head to nslds.ed.gov and look up all your loans. Put them all into a spreadsheet, with what kind of loan they are (Stafford, Perkins, PLUS for example), their interest rate, who you owe them to, the minimum payment and their amount. Learn about all the different types of student loans here.

Start by putting your private loans at the top of the list. We recommend paying off private loans first for two reasons. First, private loans are considered “unforgiveable” debt. While in the event of death or disability your federal loans could be forgiven, your private loans would likely become the responsibility of your estate. Second, private loans don’t allow for much flexibility, while federal loans offer repayment options based on income and can be put in deferment should you become unemployed.

Once you’ve included all of your private loans, sort the federal loans below from highest interest rate to lowest interest rate. Add up the total. If you need a day to let this sink in, that’s fine. Come back tomorrow, because we’ll give you strategies for reducing this number before you ever make a payment.

In the meantime, make sure to connect all your student loans in the Money Center. This will show you how they affect your net worth, and also how quickly they’re going down or up as you pay them off or accumulate interest.

Update your contact information.

Student loan communications are still largely conducted by mail, and under law you are responsible for keeping your address updated so you can receive all communications. If you put your parents’ address as yours when taking out the loan, and now have a permanent address, make sure to list your updated address with all loan holders.

Consider consolidation.

If you have several loans, you could consolidate them into one loan. It sounds great–makes everything simpler, right? But there are several drawbacks:

  • If you consolidate to a longer payback period, you will pay more interest over the life of the loan
  • When federal loans are consolidated, the average of your loan interest rate is taken, rounded up to the nearest 1/8th of a percent. That means your interest rate will be higher overall than it was before.
  • If one or more of your loans has benefits like interest subsidiesFor many federal loans, the government will pay the interest while you’re in school, during the six-month grace period after you graduate or while you’ve deferred your loans. or cancellation programsSome loan payment programs allow you to discharge your remaining debt once you’ve made on-time payments for 10 or 25 years., you could lose those through consolidation.

So only consolidate if you are truly having trouble keeping up with all your different payments. If you do consolidate your federal loans, you’ll choose your repayment plan when you do so; we go over the different types of repayment plans in Paying Student Loans 101.

Your private loans cannot be consolidated with your federal loans, but you may be able to consolidate the private loans together into one payment. This could be a good move if:

  • Your credit has improved by 50 or more points since you took out the loan, which means you could get a lower interest rate.
  • You have several different loans, and you’re having trouble keeping track of your payments.
  • You want to spread out repayment over a longer period of time, lowering your monthly payment (but accruing more interest over the life of the loan).

You could also consider taking out a home equity loan with a fixed interest rate to pay off your student loans, effectively locking in one interest rate. However, this is a gamble. If interest rates drop, you will be paying more than you would have otherwise.

Unfortunately, very few private lenders allow you to consolidate your loans. That said, you can find a full list of private loan consolidators here.

Make a budget.

Now that you’ve faced the big number, it’s time to figure out how much you can afford to pay each month toward your loans. Set up your budget in the Money Center. Keep in mind, at least 20% of your take-home pay should be going to Financial Priorities, which includes debt payment and saving for retirement. If your student loan payments are high (either because your minimums are high or because you’ve decided to increase your payments), though, you might find yourself with a higher percentage going to Priorities. See how much room you can make for your payments by cutting back on Lifestyle Choices, like eating and drinking out, shopping, gym memberships, cabs and more. You might also reevaluate whether you can afford your current rent when you factor in your student loans. Just don’t cut back on retirement savings, especially if your job matches your contribution. Learn more about creating a budget here.

Calculate your payment timeline.

Now that you know what you can currently afford to pay (which has to be at least the minimum, but ideally more), use that number to calculate how long it will take to pay off your loans. Put the minimum payment toward all the loans except for the one you ranked highest, which will be your highest-interest rate private loan if you have more than one. Once you pay that loan off, you can focus on the student loan with the next highest rate. (Remember it’s always important to prioritize paying private loans before federal.) Use this calculator for each loan, and input the pay-off time in your spreadsheet. As we go through the next steps, this repayment timeline will probably change, so continue on!

Choose the best repayment option.

You have six options for paying off your federal loans (seven if you count paying them off in a lump sum, though we’re assuming this isn’t an option for you). If you have private loans, the best payment plan is paying them off as fast as possible, especially if they have variable interest rates which could pop up. Plus, private lenders don’t adhere to a set of standard repayment plans. But for federal loans, you can choose the best plan for you. We go into detail about repayment plans here, but overall, you need to know that the lower your monthly payments now, the more interest you’ll pay over the life of the loan.

Find ways to increase your payments.

If you can increase your income, you can pay off your student loans faster and save yourself money in interest. If you’ve just graduated, make sure you negotiate your starting salary. If it’s been almost or over a year since your last raise, gather up your accomplishments and prepare to ask for a raise. Read more about negotiating a raise here.

But if a raise isn’t possible, there are plenty of ways to increase your income, even if you have a full-time job. Try freelancing in a field related to your career or passion first (it’s a résumé builder, after all). You can also try babysitting through Sittercity (you’ll get paid more as a college grad than as a high school student), find odd jobs on Craigslist or TaskRabbit, participate in focus groups through Findfocusgroups.com, or search for local mock jury or brand ambassador jobs. See more ways to make money on the side here.

Consider working in public service or education and/or moving to another city.

If you get a job in the public sector and make 120 loan payments (10 years of payments), the rest of your student loan could be discharged. If you work full-time as a teacher serving low-income students, you could have up to $17,500 of your loan paid off. Find out more here about these two options. Other options include joining Americorps, the Peace Corps, Teach for America, social work, the National Health Service CorpsEqual Justice Works, or if you are an occupational or physical therapist, choosing an employer that offers loan forgiveness.

If you’re not tied to a place, you could get a boost from moving to a new area too, and not just because of a lower cost of living. As part of programs to boost population and bring in bright young workers, some areas offer incentives in the form of loan payments. Search for opportunities near you or in your state to start.

Ask your employer to pay off your debt.

If you work in a field that requires a specialized degree (health care especially), you could search for an employer offering to pay off student loans as part of the package, or ask your employer to put money toward your loan in exchange for paying you a lower salary. Some employers are willing to do this because over the long run it costs them less in salary payments. But you must show you are committed to staying in your job for some time in order to prove it’s worth their while–it’s sort of like a signing bonus. If you are a new grad and interviewing at a small company that can’t give you a high salary, bring this up during salary negotiations. If you are already an employee, talk to HR about the possibility in your next review, confirming that you’re committed to the company.

Consider deferment or forbearance.

If you just cannot swing payments right now, and if you are at school part time, in the military, having trouble finding a job or going through economic hardship, you could qualify for deferment or forbearance, which allows you to stop making payments.

For subsidized loans and federal Perkins loans, the government might pay your interest expense during this time. But for other loans, if you neglect to pay the interest while in deferment, it will accumulate and be added to your loan. By the time it’s out of deferment, you will owe a lot more, which might leave you in an even worse situation. For these reasons, consider this option carefully before jumping in, and only if you truly cannot make your payments after finding sources of extra income and aggressively cutting your costs. If you’re struggling to make payments, this post will help you.

Sign up for autopay.

Now that you know how much you want to pay, having your payments automatically deducted is just good sense. You’ll never forget to make a payment, plus if you time it for right after you get a paycheck, you’ll never even miss the money. The bonus is that all government and some private lenders charge a slightly lower interest rate–about .25 percentage points less–if you enroll.

Take the student loan tax deduction.

Don’t leave this money on the table! If you are paying for a student loan and have an income under a certain threshold, you can deduct up to $2,500 in student loan interest from your taxes as of 2015. Learn more.