Before I even set foot onto my college campus, I was already thinking about how I was going to pay for school. And you know what? I’m convinced that’s the reason why I was able to pay off my $20,000 student loan debt with almost zero interest just three years after graduation!
But don’t let this discourage you. No matter where you are in your student loan repayment journey, you can still pay off your debt and become financially free.
Whether you’re thinking about going to school, already knee-deep in studies, or a good decade past tossing that graduation cap, I’ll give you 10 tips and tricks to help you pay off your student loans. I’ll also be sharing exactly what I did in high school, college and after graduation to pay off my debt before it accrued tons of interest.
My Story: How I Paid off My Student Loan Debt
Before I let you in on the 10 tips to help you pay off your student loan debt, I’d like to share my personal student loan repayment story.
Let’s start from the beginning, senior year of high school.
Before College
I’ll be honest, I did some regrettable things in high school. I mean, who didn’t?! But one thing I can applaud my 18 year old self for is the mindset I had surrounding money and college.
I know a lot of high schoolers choose to go to the most expensive universities and pay for it later, but I wasn’t one of them.
Growing up, my mom did a great job of raising my sister and I to be money conscious and frugal. So, I have to credit her for my decision to go to an inexpensive state school.
While my friends were accepting admissions letters from fancy liberal arts colleges, I had my eyes set on a large state school across the country. What I didn’t know at the time was that it was a commuter school, which meant that most students lived at home.
Sure, this didn’t make for a lively campus life, but it did mean that the college was so desperate to fill their dorms with out-of-state students that they gave me in-state tuition (and my grades weren’t all that great either!). This meant that my annual tuition cost was a manageable $9,000. Thankfully, Federal Student Aid covered $4,500 each year, leaving me responsible for the remaining half.
After four years of school, I graduated with $20,000 in student loans.
During College
Let me start off by saying that I understand $20,000 isn’t that much money as far as student loan debt is concerned. This was clear to me even in high school, when I was filling out financial aid paperwork, realizing that I wouldn’t have to take out any private loans. Instead, I could cover my debt with Federal Unsubsidized and Subsidized Student Loans.
I’ll dive deeper into the difference between the two later in the post, but the most important thing to note is that Subsidized loans don’t accrue any interest while you’re in school (or during a 6 month grace period post graduation), while Unsubsidized loans do. That’s why my goal was to pay off my Unsubsidized loans first, and as quickly as possible.
I was able to do so by waitressing and throwing literally all of my extra income at this debt. The interest accrued monthly which meant that if I could pay it off before the end of the year, I wouldn’t have to pay the full 4.99% interest rate!
For anyone who wants and is able to work through college, I always recommend serving. The hours are super flexible and with tips, the hourly pay is great. This means you can work less and make more.
Aside from working through college, I didn’t own a car which saved me tons of money. I also lived very frugally – I hardly ever bought new clothes or went out for drinks or food. Honestly, it wasn’t that hard to do in college since everyone I knew was also on a tight budget.
Ultimately, the key to saving money was getting that gap between income and expenses as high as possible.
After College
Now for what I did after college.
I was able to pay off my Unsubsidized student loans while in school which meant that I graduated with $10,250 of Subsidized student loans. But don’t be fooled, I wasn’t able to pay off this balance within the 6-month grace period. No, life after college proved to be way more expensive than life during college. That’s why the timing of my graduation played a pivotal role in my ability to pay off my Subsidized student loans with zero interest.
You see, I graduated college in 2020, which means that I was in the first wave of students graduating during the pandemic. I’ll be honest, I wasn’t thrilled to have my commencement ceremony via Zoom. But you know what I was excited for? The Department of Education’s COVID-19 student loan forbearance program. This program put my student loan debt interest on hold for over 3 years! During this time, I was saving money consistently by following a budget. My mission was simple: when forbearance ended, I wanted to have enough money saved up to pay off my debt right away.
Then came June of this year, and I got the dreaded email: The Department of Education’s COVID-19 student loan forbearance program was ending. As of September 1, interest would resume and payments would be due beginning in October. So, for the past few months, I went into full-on savings mode, getting ready to make my final student loan payment. And I’m happy to report, that I did! Just 2 days before my interest would start accruing again, I paid my student loan debt off in full!
10 Tips to Help You Pay Off Your Student Loan Debt
I believe that the main takeaway from my story is that everyone has a different starting point when it comes to student loan debt.
Some people are equipped with the knowledge to make smart financial decisions from an early age, while others are not. Some families receive more financial aid than others. I even had friends receive no financial aid because their parents’ expected contribution amount was so high, when in reality, their parents hadn’t saved up any money for them to go to school.
Wherever you’re at with your student loan repayment journey, just remember, you’re not alone.
On that note, below are 10 tips to help you pay off your student loan debt.
1. Understand Your Student Loans
One of the most important things that you can do when acquiring loans is truly understanding them. But so many people struggle to, and honestly, I get it! It can be so overwhelming to figure out the differences between the different types of student loans and what steps to take to pay them off.
I’ll give you a super simple breakdown.
There are two main types of student loans: private and federal. Federal and private student loans have different interest rates, repayment terms, hardship options and fees. In most cases, federal student loans are preferable because of the benefits they come with. But if you’ve maxed out your federal loans, it may be worth considering private student loans.
Federal Student Loans
Federal student loans are provided by the U.S. Department of Education to help students cover the costs of higher education. This includes tuition, fees, books, housing, and other related expenses. These loans are available to eligible students pursuing post-secondary education at accredited colleges, universities, and vocational schools. There are several types of federal student loans, each with its own terms and conditions. The main types include:
- Direct Subsidized Loans: These loans are based on financial need. The government pays the interest that accrues while the borrower is in school at least half-time, during the grace period, and during deferment periods.
- Direct Unsubsidized Loans: These loans are available to both undergraduate and graduate students, regardless of financial need. However, there is a limit to how much you can borrow. That’s why many students end up taking out private loans alongside Direct Unsubsidized Loans. These loans start accruing interest as soon as they’re dispersed (while you’re still in school) but at a much better rate than private loans. When I was in school, this was 4.99%.
- Direct PLUS Loans: These loans are available to parents of dependent undergraduate students and to graduate or professional students. PLUS loans require a credit check and have higher interest rates compared to other federal loans.
- Direct Consolidation Loans: This type of loan allows borrowers to combine multiple federal student loans into a single loan, in order to lower your monthly payment amount or gain access to federal forgiveness programs.
Private Student Loans
Private student loans are from private lenders like banks and credit unions. They bridge the gap between the total cost of education (including tuition, fees, books, housing, and other expenses) and the amount covered by scholarships, grants, federal loans, and personal savings.
Below are some key points to keep in mind when deciding whether taking out private student loans is the right decision for you:
- Interest Rates: Rates depend on credit score, co-signer’s credit, and lender terms. They can be fixed or variable and might exceed federal loan rates.
- Repayment Terms: Private loans offer varied repayment options, like immediate payments, interest-only during school, or deferred payments. Terms differ from federal loans.
- Borrowing Limits: Private loans allow higher borrowing compared to federal loans, but responsible borrowing is crucial. It’s important to borrow only what’s necessary to avoid excessive debt.
- Co-signer Requirement: Many private lenders require a co-signer, especially for undergraduate borrowers or those with limited credit history. A co-signer is equally responsible for repaying the loan if the primary borrower cannot make payments.
- Pros and Cons: Private loans can provide benefits such as flexible repayment plans and career support. Yet, they lack federal loan perks like income-driven plans and forgiveness options.
By understanding these key differences between federal and private student loans, you can make an informed decision about how much to borrow and which loans to pay off first!
2. Create a Budget
Budgeting is the process of tracking your income and expenses, with the added step of setting spending limits on those expenses. It can help you identify areas where you can cut back on spending, redirecting those funds towards paying off your debt. Plus, it keeps you from going overboard with your spending. After all, having student loan debt doesn’t grant you immunity from accumulating additional, unnecessary debt.
So, how do you get started with budgeting? First, you’ll want to track your spending for an entire month. You can do this by recording your expenses in a notepad, looking at your credit card statement or using a budgeting app or budgeting spreadsheet.
Below is an example of a $3000 monthly budget:
- Rent: $1000
- Groceries: $300
- Cellphone: $60
- Electricity/Water/Gas: $250
- Health Care: $100
- Transportation: $200
- Entertainment: $109
Total Expenses: $2010
Total Savings: $990
Take a look at the total savings number above. Let’s say you already have some savings built up – great! That means that you can put all $990 towards your student loan debt.
But what if you don’t have any savings? Is it better to pay off debt or save money?
Related Articles:
How to Budget Money on $1500 a Month
How to Live on $2000 a Month (10 Frugal Tips)
Free 50/30/20 Budget Template & How to Use It
3. Prioritize High-Interest Loans
When you’re dealing with a mix of different types of student loan debt – like subsidized loans, unsubsidized loans, and private loans – it’s important to decide which student loans to pay off first.
Prioritizing the high-interest loans is a good starting point.
One of the most popular methods for tackling student loan debt is the Avalanche Method, and it aligns perfectly with the idea of targeting high-interest loans first.
The Avalanche Method involves focusing on loans with the highest interest rates while making minimum payments on the rest. By channeling more of your repayment efforts towards high-interest loans, you minimize the amount of interest that accrues over time. This approach is all about slashing the overall cost of your debt. You’re basically stopping the compounding interest cycle that can make your debt snowball over time.
Speaking of snowball, you may have also heard of the Snowball Method. This budgeting method is all about paying off your smallest loans first to build a sense of accomplishment. But while eliminating smaller debts can boost your confidence and motivation to continue, it might not be the most financially savvy choice. In the context of mixed student loan debt, prioritizing low-balance loans might mean you’re neglecting higher-interest loans that continue to accumulate larger amounts of interest.
4. Pay More Than the Minimum
When possible, always pay more than the minimum!
Minimum payments are often designed to keep you in debt for as long as possible. They might cover the interest and a tiny bit of the principal (the actual loan amount), but the rest of the principal just sits there, accruing interest. Suddenly, you’re not just paying for what you borrowed, you’re paying for borrowing. This can turn a $30,000 student loan into a $40,000 student loan in just several years!
Plus, when you’re sending in only the minimum, you’re locked into that schedule set by the loan terms. But life doesn’t always stick to plans. Unexpected expenses, job changes, or opportunities might pop up, and if your money’s all tied up in minimum payments, you’re stuck. By paying more than the minimum, you’re building a safety net. You’re creating room in your budget, giving yourself the freedom to handle whatever curveballs life throws at you without sinking into further debt.
5. Explore Refinancing
Refinancing your student loans is a great option if you have multiple private student loans with varying high interest rates.
Refinancing is when a financial institution pays off your student loan and then issues you a new loan at a new rate. This combines the multiple loans that you already have into one new loan that has a lower interest rate than the rates of the existing loans. If the interest rate isn’t lower, there’s no reason to refinance.
There’s no downside to refinancing your private student loans and you can do it as many times as you’d like to secure a lower and lower interest rate. Read this story by a CNBC reporter who refinanced his student loans six times and was able to save thousands in interest!
However, if you have federal student loans you should think twice before you refinance. If you refinance federal loans, they won’t be eligible for benefits like loan forgiveness and student loan relief. These programs saved my butt in 2020 and I would’ve been devastated if I didn’t have access to them. For that reason, I don’t recommend refinancing your federal loans.
If you’re ready to refinance, compare offers from multiple lenders. Ultimately, the one that gives you the lowest interest rate is the best one for you. If multiple lenders give you similar rates, consider the other benefits they may offer you. These benefits may include things like payment flexibility or pause on payments if you have difficulty making them. Once you’re approved, you get to choose if you want a variable or fixed interest rate as well as the length of your repayment term.
6. Enroll in Autopay
Besides refinancing, another great way to lower the interest rate on your student loan is to enroll in autopay.
Enrolling in auto-pay means that your monthly loan payments are automatically withdrawn from your bank account on a predetermined schedule, typically the same day each month.
Most lenders and loan servicers offer an interest rate reduction as an incentive for enrolling in auto-pay. The reduction is typically around 0.25%, but even this small percentage can add up to significant savings over the life of the loan.
But that’s not all! Besides the financial perks, enrolling in autopay has many other benefits. It ensures consistent and timely payments, effectively shielding you from late fees. It also streamlines the payment process, saving you time and effort. And last but not least, it provides peace of mind, alleviating the stress of making monthly payments.
7. Utilize Windfalls
If paying off your student loan debt is your number one priority, you’ll need to be willing to make some sacrifices. Like putting unexpected windfalls such as tax refunds, bonuses, or even unexpected cash gifts towards your student loan repayment.
Now, I know it’s not as fun as buying a new outfit or going out to a fancy restaurant, but it’ll significantly accelerate your journey towards financial freedom.
8. Side Hustle Income
Besides occasional windfalls, the best way to find extra money to put towards your student loans is to have a side hustle.
Let’s say you have a day job that pays the bills. A couple of nights a week, you could take on some bartending or waitressing shifts. Or, if you’re an animal lover, you could pet-sit or dog walk. Housesitting is another great way to make some extra money and is especially convenient if you work for home. I even have a friend who does figure modeling for art classes. It’s not your typical side gig, but it brings in some extra cash for her and a good story or two.
Now, don’t get me wrong – balancing a side hustle alongside your regular job can be a juggling act. But it’s worth it to see if you can make it work!
9. Explore Student Loan Forgiveness and Repayment Assistance Programs
When it comes to paying off your student loan debt, it’s essential to explore every possible avenue that can lighten your financial load. That’s why it’s important to research forbearance as well as student loan forgiveness and repayment assistance programs to see if they can benefit you. Although these programs won’t erase your student loan debt overnight, they can accelerate your journey to financial freedom by several years.
Let’s say you’re a teacher or nurse. Programs like Teacher Loan Forgiveness and NURSE Corps Loan Repayment offer loan forgiveness after working in underserved or low-income areas for a specified number of years. Or if you’re a public service worker, you can qualify for the Public Service Loan Forgiveness (PSLF) program which provides loan forgiveness after 10 years in public service.
But that’s not all – income-driven repayment plans offer flexibility, adjusting your payments based on your income and potentially leading to forgiveness.
And then there’s forbearance – a temporary pause button on your loan payments during times of financial hardship or other qualified situations. While it’s not a forgiveness program, it can provide essential relief when needed.
The Student Loan Gal wrote an awesome article about 15 Student Loan Forgiveness & Repayment Assistance Programs. Click here to give it a read!
10. Employer Benefits
And last but not least, there’s employer sponsored benefits.
Many forward-thinking employers are recognizing the burden that student loans place on their employees and are taking steps to provide support. So, if you’re in the market for a new job, consider narrowing your search to companies that offer student loan repayment assistance programs as part of their benefits package.
In Conclusion
Paying off your student loan debt might seem impossible, but remember, you’ve already proven your dedication and hard work by pursuing your education. Now, you just need to adopt that mindset towards your student loan repayment. You’ve got this!
SDK says
Thank you for your wonderful website. Just wondering about including internet and insurance expenses. Currently car fuel alone is over $200/month and basic internet (no frills) is $70. Auto insurance and homeowners insurance/renter’s insurance is another $250 even with deductibles. I imagine it can vary depending on where a person lives. Also we have free medical where we live, but I don’t think that it’s available to everyone everywhere. Medical is a huge concern. Please don’t take this as a criticism; it was just an observation. You handled your college expenses really well. What a great example!
barefootminimalists says
Hi SDK! Thank you so much for reading and I appreciate your input 🙂 Ultimately, everyone’s budget breakdown is going to look very different depending on where they live and their needs. The budget I shared was just an example – I actually don’t spend any money on car fuel/insurance because I don’t own a car. Cutting out this expense has saved me hundreds every month! Of course medical is a non-negotiable, but there are actually income based plans out there that cost less than $100 a month. I was able to find a plan that was only $31 a month through Stride Health, a California startup that focuses on connecting individuals with health plans under the Affordable Care Act. According to their website, they’ve been able to find 4 out of 5 people plans for under $10 per month!
Love your website! Valuable information and great ideas!
Congratulations on paying off your student loan! Well done!
Thank you so much!