How To Pay Off Student Loans (with a real-life success story)

Student loans are one of the biggest financial burdens, but don’t let the overwhelm take over—as long as you choose the right strategy and stick to it, you can pay it off as soon as possible.

In this article, I cover everything you need to know about managing student loans: repayment strategies, forgiveness options, avoiding default, and boosting your income to achieve debt freedom.

Understand Your Student Loans

Before you can take actionable steps toward repaying your student loans, it’s essential to have a crystal-clear picture of your total student debt. Think of this as your map—you can’t reach your destination if you don’t know where you’re starting from.

To begin, set aside 30 minutes to gather all your loan information. Use the National Student Loan Data System (NSLDS) for federal loans and your credit report for private loans to create a comprehensive loan inventory. Document key details such as interest rates, loan servicers, current balances, and monthly payments.

Taking this single step will make every strategy that follows more effective, helping you approach your student loans with clarity and confidence.

For federal loans:

Determine which type of student loan you have—whether it’s a Direct Subsidized, Unsubsidized, PLUS loan, or any other type. You’ll want to document your current repayment plan and remaining balance, taking into account any payment pauses or adjustments, particularly those implemented during the COVID-19 pandemic period.

Next, check to see if you’re eligible for any of the latest loan forgiveness programs or Income-Driven Repayment (IDR) adjustments by following these steps:

• Log in to your account on StudentAid.gov
• Navigate to the “Loan Forgiveness” section
• Use the Loan Simulator tool (found under “Loan Simulator” in the navigation)
• Input your loan information and employment details

The tool will show all forgiveness programs you might qualify for, including Income-Driven Repayment (IDR) plans, Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and any other available forgiveness programs.

For private loans:

If you have a private student loan, reach out to each loan servicer to request a detailed breakdown of your loan’s interest rates, repayment terms, and any prepayment penalties. Make sure to document whether your interest rates are fixed or variable, as this will largely influence your refinancing strategy.

To fully understand the cost of your loans, use your loan servicer’s amortization schedule to calculate the total amount you’ll need to pay, including the interest.

Create a Budget to Pay Off Your Student Loans

Now that you have a clear, big-picture view of your student loans, it’s time to create a sustainable budget to help you pay them off effectively.

A great way to take control of your finances is by implementing a Conscious Spending Plan. This approach allows you to automate your loan payments while managing your money wisely as you work toward your financial goals.

Record your expenses for 30 days with specific categories to stay on track:

• Fixed Costs (50-60%): Include essentials like minimum loan payments alongside rent, utilities, and other essential bills
• Investments (10%): Consider if you should prioritize retirement savings alongside loan repayment
• Savings (5-10%): Build an emergency fund to prevent taking on additional debt
• Guilt-free Spending (20-35%): Allow room for enjoyment while balancing loan repayment, so you can stay motivated without sacrificing your present quality of life

Identify concrete areas to trim your spending by::

• Reviewing streaming subscriptions ($15-50/month savings)
• Negotiating lower rates for insurance and phone bills ($30-100/month savings)
• Consider sharing rent with a roommate ($400-800/month savings in major cities)
• Meal prepping instead of eating out ($200-400/month savings)

To stay organized and resist the urge to spend extra savings, set up a dedicated “loan payoff account” separate from your regular checking account. Automate transfers of any additional funds into this account, ensuring they go directly toward your loan repayment without distraction.

Choose A Repayment Strategy That Works For You

There are two primary strategies for loan repayment: the Debt Avalanche Method and the Debt Snowball Method.

Both approaches provide a structured plan to tackle your student loans—choose the one that resonates most with you and helps you stay on track toward paying off your student loans.

Debt Avalanche Method

While popularized for credit card debt, the debt avalanche method is equally effective for student loans because it minimizes the total interest you’ll pay over time.

Implement the debt avalanche method by following these steps: 

• List all student loans and rank them from highest to lowest interest rate, while maintaining minimum payments on all loans.
• Direct any extra money in your budget toward the highest-interest loan first, focusing on your most expensive debt.
• Calculate your potential savings: If you have $50,000 in loans with interest rates ranging from 7% to 4%, using the avalanche method could save you $2,000-3,000 in interest compared to making minimum payments.
• Review your progress by setting monthly milestones that show both the decrease in loan repayment balance and the savings in interest.

This method can save you more money in the long run, as it focuses on reducing the highest interest rates first, effectively minimizing the impact of compounded interest over time.

Debt Snowball Method

Also originally designed for credit card debt repayment, the snowball method’s psychological benefits make it equally powerful for tackling student loans.

Implement the debt snowball method by following these steps: 

• List your loans from smallest to largest balance—regardless of interest rate.
• Direct extra payments toward the smallest loan while maintaining minimum payments on others.
• Create a visual representation of your progress with a simple spreadsheet: Each time you eliminate a loan, you’ll feel a sense of accomplishment.

This method can be more motivating, as it allows you to target quick wins, gradually building momentum as you work toward tackling the larger, more intimidating balances.

Understanding federal repayment plans

It’s important to note: Federal repayment plans aren’t strategies—they’re fundamental payment structures for federal loans that shape your overall approach.

Income-Driven Repayment (IDR) Plans include:

• PAYE (Pay As You Earn): Caps payments at 10% of discretionary income for newer borrowers.
• REPAYE (Revised Pay As You Earn): Similar to PAYE but available to all Direct Loan borrowers.
• IBR (Income-Based Repayment): Offers 10% or 15% payment caps depending on when you borrowed.

To determine which plan works best for your financial situation, use the Federal Student Aid Loan Simulator to calculate your monthly payment under each option and choose the most affordable one.

When making a decision, keep in mind the long-term implications: while lower payments can be appealing, extending the loan term to 20-25 years may increase the total interest you need to pay.

Be sure to document your annual income recertification requirements to avoid payment increases and to capitalize on interest savings.

Lastly, stay up-to-date on the latest repayment plans, they may change depending on who the current administration is, and you’ll want to seize any opportunity for a better deal.

Consolidation vs. Refinancing: understanding your options

When managing your student loans, you have the option to consider consolidating or refinancing your debt if it can offer you a more suitable repayment plan.

Considerations for Federal Loan Consolidation:

• Simplify Payments: Combine multiple federal loans into one Direct Consolidation Loan, making it easier to manage with just a single payment.
• Preserve Federal Benefits: Retain access to federal protections like Income-Driven Repayment (IDR) plans and loan forgiveness programs.
• Qualify for Repayment Programs: Consider consolidation if you’re aiming to qualify for specific repayment programs that can help you pay off your debt faster.

Considerations for Private Loan Refinancing:

• Lower Interest Rates: Refinancing typically offers lower interest rates for borrowers with good credit and stable income.
• Calculate Your Savings: A 1% reduction in the interest rate on $50,000 of loans could save you $500 annually.
• Consider Your Income Stability: Only refinance if you’re confident in your ability to maintain a stable income and won’t need any federal loan benefits.
• Removal of Federal Protections: Keep in mind that refinancing with a private lender permanently removes federal benefits and protections, so it’s important to weigh this decision carefully.

In short, both federal loan consolidation and private loan refinancing can offer you distinctive benefits but also come with potential drawbacks. So carefully evaluate your financial situation and long-term goals to choose the option that best aligns with your repayment strategy.

Explore Loan Forgiveness and Assistance Programs

Many people don’t realize that loan forgiveness and assistance programs are available. I highly recommend reviewing these options to check your eligibility—you might be able to significantly reduce your student loans and relieve yourself of this financial burden.

Here are the core loan forgiveness and assistance programs available:

• Public Service Loan Forgiveness (PSLF): If you work full-time for a government or non-profit organization while making 120 qualifying monthly payments on your Direct Loans, you can have your remaining loan balance forgiven tax-free after 10 years of service.
• Teacher Loan Forgiveness: Teach full-time for five consecutive years at a qualifying low-income school to receive up to $17,500 in forgiveness (for math, science, or special education teachers) or up to $5,000 for other qualifying teachers. You must have Direct or FFEL Program loans to be eligible.
• Income-Driven Repayment (IDR) Forgiveness: After making 20-25 years of payments under an income-driven repayment plan, any remaining balance on your federal student loans will be forgiven. Keep in mind, unlike PSLF, the forgiven amount is taxable as income.
• State and Professional Forgiveness Programs: Many states offer loan forgiveness programs for specific professions, such as healthcare workers, lawyers, and others in critical roles. For example, the National Health Service Corps offers up to $50,000 in loan forgiveness for healthcare professionals who work in high-need areas for two years.

Avoid Loan Default

The biggest mistake you can make with student loans (or any loans, for that matter) is defaulting.

Defaulting on your loans can lead to serious consequences that will follow you for decades, including wage garnishment of up to 15%, damaged credit scores, and loss of access to federal loan benefits,  including forgiveness programs and flexible repayment options.

You can avoid loan default by following these helpful tips:

• Create automated calendar reminders 5-7 days before each due date and maintain an emergency buffer equal to one month’s loan payment in your account at all times.
• Develop a proactive communication strategy with your loan servicer long before you’re at risk of default. Keep detailed records of all conversations, including date, time, and representative name, and always request confirmation of any changes to your repayment plan in writing.
• Should you have any issues making payments on time, contact your servicer immediately to explore three key options: switching to an income-driven repayment plan, applying for deferment, or requesting forbearance—all of which are better alternatives than risking default.
• If you need further help in understanding your repayment options, talk to non-profit credit counselors specializing in student loan debt. These services are typically free and can provide valuable guidance before your loans become delinquent.
• Document every interaction related to your loans, including payment confirmation numbers, copies of all correspondence, and notes from phone conversations. This can protect you if there are ever questions about your payment history or servicing issues.

It’s tempting to ignore the problem when it feels overwhelming but trust me, the long-term consequences of loan default come at a much higher cost. Do everything you can to avoid defaulting—it’s far better to address the issue now than to face the financial repercussions later.

Increase Your Income to Pay Off Student Loans Faster

If you’re laser-focused on paying off your student loans, finding ways to increase your income can make a significant difference in speeding up your progress.

Brainstorm readily-available opportunities for earning extra income

To get started, focus on low-barrier opportunities that can generate immediate income. Consider picking up overtime at your current job, signing up for food delivery apps to offer your services during your off days, or selling items you no longer need through marketplace apps.

You can also consider seasonal or temporary work during high-demand periods, such as tax preparation during tax season or working retail during holidays, which can potentially add thousands of dollars to your annual income.

If you are looking for more ideas and inspiration on making extra money, these articles might be helpful:

• Second Income Ideas: Start Earning Extra Cash in 2024
• 5 Ways to Make Extra Money (without quitting your day job)
• 50+ Best Side Hustle Ideas To Make Money Fast (+ #1 Secret)

Turn your skills into a side hustle

Assess your current job expertise and identify skills that could translate into consulting or freelance work. For instance, if you’re a writer, editor, designer, or developer, platforms like Upwork and Fiverr can connect you with clients in need of your specific skills.

To begin, take up 1-2 clients or projects while maintaining your full-time job. This allows you to ease into freelancing or consulting without the risk of getting overwhelmed, protecting both your primary employment and your professional reputation.

Once you’re confident, consider reinvesting a small portion of your earnings into enhancing your services—whether by purchasing necessary software, upgrading your equipment, or taking relevant courses to up-skill. However, make sure to allocate the majority of your earnings directly toward paying off your student loans.

If you’re still unsure where to start, check out this article where I share everything you need to know to start earning on the side.

Have a clear strategy to manage your extra income

As you are diversifying your income source and managing your extra funds, here’s how you can maximize your earnings towards your student loan repayment:

• Create a dedicated “loan payoff” bank account: This can help you create clear boundaries and reduce the risk of your additional earnings being absorbed into regular spending.
• Follow the 80/20 rule: Put 80% of your extra income towards clearing your student loans, and keep 20% for taxes or even a small reward for yourself to stay motivated.
• Review the impact of your extra payments: Keep an eye on how each extra payment contributes to your student loan debts. By tracking your progress, you will be motivated to earn more and push forward towards your goals.

Success story: How Laura paid off $77,000 in student loans in less than 2 years

If you are feeling dejected by the amount of student loan debts you’re facing, Laura Long is proof that paying it off is more achievable than you think.

After realizing her regular payments weren’t making a dent in her $77,000 debt, Laura took a bold step and launched a new business helping therapists build successful practices, all while maintaining her existing therapy practice.

She channeled 100% of her business profits into paying off her loans, treating every new client and business milestone as an opportunity to chip away at her debt.

In just 18 months, Laura successfully paid off her entire student loan debt—going from feeling overwhelmed by debt to experiencing complete financial freedom.

Her story shows that with focus and the right strategy, you can pay off your student debts sooner than you think. Whether it’s through starting a business or picking up a side hustle, the key is staying disciplined and taking consistent action toward becoming debt-free.

Making side hustles work for you in the long run

To achieve long-term success in increasing your income with a side hustle, you need to make it sustainable for yourself in the long run.

Here are some actionable tips to get you through:

• Set realistic income goals for your first year of side hustling: Aim for an extra $500-$1,000 per month to start, then scale up as you gain experience.
• Create a sustainable schedule that won’t lead to burnout: Consider working 10-15 extra hours per week rather than trying to work every available hour.
• Remember that sometimes temporary sacrifice can lead to long-term freedom: Laura’s intense 18-month journey led to complete debt freedom and a successful business she could continue running.
• Stay motivated by reviewing how your additional earnings reduce your loan term: Even an extra $200/month can cut years off your repayment timeline.

Like any other debt, student loans can feel like an overwhelming financial burden. However, by taking full ownership and focusing your efforts on a repayment strategy, financial freedom is well within reach. It’s not as far off as you think—you just need to commit and take that first step.

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