No one ever wants to talk about the unglamorous work that goes on behind the scenes, but it’s the unspoken progress that makes or breaks every successful business owner, athlete, or creative person. It is helpful to have this mindset and to think about student loan repayment like any other big feat worth accomplishing.
It begins in knowing that paying down student loans in a way that is financially smart and effective for you can take time and effort, much of which lies in the preparation—the proper planning, budgeting, and education can go a long way to make tackling your student loans during the next decade or more so much easier.
While there is no one single smartest way to pay off student loans, there are steps that you can take that can help put you in a great position to pay off your student loans on a timeline and with terms that work for you. In addition to understanding your student loans, your goals can also include building an overall financial plan that includes your loans.
Strategies to Pay Off Student Loans
If you want to understand how to repay student loans in the smartest and most financially responsible way possible for you, here are nine steps to consider including in your student loan repayment plan.
1. Organizing All Of Your Sources Of Debt—Including Student Loans
Keeping track of all of your student loans and other sources of debt can be tricky, especially if you are a recent graduate. A first step to consider is to organize them in a list.
On your list, you could include the loan service provider (bank, federal government, or private lender), amount of the loan, monthly payment, interest rate, and when the loan should be paid in full.
If you aren’t sure what your monthly payments on your student loans will be, you can use our student loan calculator to get a rough idea—or you can call your loan servicer(s).
If you have credit card debt or other personal loans, include these on your debts list. With all of your sources of debt, you can then mark on a calendar the date that the monthly payments are due.
While you always need to make the monthly minimum payments on all debts (unless your student loans are within their grace period or are in forbearance), listing them out allows you to identify which debts you may want to pay off first.
If you have high interest credit cards adding up each month, a credit card consolidation loan may be a great option to look at, too.
Once your credit cards are paid off, you’ll want to think about whether your goal is to pay your loans off quickly, or to simply make the monthly payments until the loans are done. The former is one way to save on interest over time.
Some folks do prefer to pay only the minimum monthly amount on their student loans so that they can save a little while they pay down their student loans.
2. Budgeting To Include Loan Payments
No matter who you are, learning how to budget your money is a good thing to have on the top of your financial to-do list. It can take time and effort to develop a budgeting system that works for you, but it is doable, and totally worth it. To get started, track your monthly cash inflows and outflows for two months.
Total up how much money you spent in each category, including debt payments like student loans.
Once you have a general idea of what you’re spending in each category, you can begin to build a budget framework. For example, if you spend $260 on groceries one month and $300 the next, you can now set yourself a realistic grocery budget. Leave room for annual, bi-annual, and quarterly expenses, as well as incidentals.
With a budget that is built to include student loan payments, you’ll be more equipped to make all of your payments on-time and know how much is available to spend on other needs and wants. Also, understanding exactly how you’re spending allows you to identify the areas where you’re overspending.
For example, a close look at your budget could reveal that you’re spending more than you realized on dining out, subscriptions, clothing, or even rent—and gives you the power to make a change. And by saving money in other categories, you can free up money to apply to your financial goals.
3. Setting Up Automatic Payments
Hopefully, your student loans are already set up to be automatically deducted from your bank account. (This is a good strategy for all your monthly bills.) If they aren’t, you can contact your student loan servicer to set it up. This way, you won’t miss a payment because you forgot or are somewhere where you can’t access the internet.
Remember, if you miss or are late on a payment, it can negatively impact your credit score. Bad credit could preclude you from opportunities in the future, such as being able to refinance your loan to a lower interest rate. Take every extra precaution to make sure your loans get paid on time.
As an added bonus, some service providers offer a discount if you arrange to pay by automatic payments. When you sign up, be sure to ask if such a discount is available.
See how student loan refinancing could
be a smart way to help
pay off your student loans.
4. Paying More Than The Minimum Monthly Amount
Most student loan servicers allow you to pay more than the minimum monthly payment, and doing so can be a great strategy if your goal is to pay back your loan faster than the stated term. In addition to a faster payoff, you can save on interest over the life of the loan by paying it off sooner. Even small amounts can make a difference.
To do this, you can call your loan service provider to adjust your automated monthly payment to a higher amount, and clarify that you want that extra money dedicated to the principal of the loan.
Make sure, after the next month’s payment, that the money was indeed put towards the loan’s principal. Looking for more ideas on paying down your student loans? SoFi’s student loan help center offers tips, guides, and resources on all things student loans.
5. Putting Additional Income Towards Student Loans
Increasing your monthly payment isn’t the only way to put a dent in your loans; at any point, you are allowed to make a lump sum payment towards the principal of your loan. This is a great way to speed up the student loan repayment process without having to commit to paying more each and every month.
You may have more opportunities to do this than you think: You could utilize your tax refund, holiday or birthday money, work bonuses or inheritance money.
Additionally, putting income from a side hustle or other passive income towards student loans could be a financially rewarding move over the long-term.
6. Adjusting Your Repayment Plan If Needed
Most federal student loans come with a standard, ten-year repayment plan—unless you chose otherwise.
With federal loans, there are other options for repayment plans with lower monthly payments, calculated using discretionary income and family size. These plans can lower your monthly payments by extending the length of your loan, usually from ten years to twenty or more years.
If you choose one of these options, it is important to know that even though your monthly payments are lower, you can end up paying more in interest over time (longer loan terms mean more interest payments, after all).
Therefore, it’s not a great choice if you want to pay off your loans quickly or pay as little in interest as possible, but it is available to those who are having trouble making their monthly payments.
If you are planning to utilize the Public Student Loan Forgiveness (PSLF) program for your federal student loans, you will need to select one of the income-driven repayment programs.
7. Considering Refinancing Your Loans
When you refinance a loan or multiple loans, a private lender pays off your current loan(s) and provides you with a new loan, ideally at a lower rate. A lower interest rate could mean savings over the life of your loan.
Though student loan refinancing might not be the right option for everyone, it’s a strategy that student loan holders may want to research and consider.
Also, understand that while refinancing can consolidate multiple student loans, both federal and private in many cases, federal loan consolidation is a totally different process. With federal student loan consolidation, the government bundles your loans together into one, using a weighted average of the interest rates, rounded up to the nearest eighth of a percent.
If you’re considering refinancing with a private lender, however, you may want to ask yourself whether the purpose is to lower your monthly payment but keep the same term, freeing up some money in your monthly budget, or to increase your monthly payment at a lower interest rate, by shortening your term, so that you can pay off your student loans faster.
It’s important to note here that refinancing your federal student loans with a private lender means you give up the benefits and protections offered by the federal government, like the income-driven repayment plans mentioned above, as well as PSLF and deferment or forbearance options.
Exploring refinancing with a private lender usually doesn’t take a lot of time and it usually doesn’t cost you anything. For example, you can get rate quotes from SoFi in just a few minutes, and even talk to a representative who can walk you through the process.
8. Knowing Your Worth And Asking For A Raise
With all raises, you can use the extra income towards your financial goals. This could mean increasing the monthly amount you pay towards your student loans, or making the occasional lump sum payment with the extra windfall, and/or saving money for other long-term financial goals.
How much money you earn is an important factor contributing to your financial stability and ability to pay down your student debt. While budgeting is important, so is knowing your worth and asking for more when you deserve it.
If you haven’t already, start keeping track of your successes now so that at your next compensation conversation, you’re loaded with concrete data on why you deserve a bump.
9. Understanding Your Employment Benefits Packages
Although not yet as widespread as retirement or healthcare benefits, more employers are offering student loan repayment help as a benefit to attract and retain employees.
Depending on your personal situation, student loan repayment help could be as important as a raise or other benefits.
Whenever you’re comparing job offers, it’s critical to understand and compare benefits packages, because although they’re not flashy like a big salary or company equity, benefits can be just as valuable.
If you’re looking for a new job, you could include student loan repayment help in your search. While it obviously shouldn’t be your only consideration, it’s great to have an idea of what you’re looking for in an employer.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.