How to Pay Off Student Loans: 8 Tactics

·8 min read

Content provided by Credible. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

While sticking to your student loan repayment schedule is great, paying off your loans sooner than scheduled is even better — an early payoff could save you thousands of dollars in interest.

Although student loans typically start off with 10-year repayment terms, federal loan consolidation and private student loan refinancing can extend the term to 30 years or more. A longer repayment term will cost you thousands more in interest. And long-term debt often brings a psychological toll along with its financial impact.

Let’s examine how to pay off student loans quicker, so you can hopefully save some money on interest.

The basics of student loan repayment

Federal and private student loans come from different sources, and you repay them differently.

Federal student loans come from the government and offer fixed interest rates and income-driven repayment plans that private student loans (which come from private lenders such as banks and credit unions) don’t typically offer. Private student loans tend to have higher interest rates and can be more expensive than federal loans, which can make it harder to pay them off in a timely manner.

Credible lets you compare refinance rates from private student loan lenders in minutes.

Repaying federal student loans

All private lenders have their own unique repayment timelines. But with federal student loans, once the borrower drops below half-time enrollment, leaves school, or graduates, they must begin repaying their student loans.

You do get a six-month grace period after one of these events to start repayment if you have a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan. Borrowers with Perkins Loans get a nine-month grace period. If you have a PLUS loan, repayment begins as soon as the loan is fully disbursed.

Once you enter the repayment period, your federal student loan servicer will start you on a Standard Repayment Plan. You can choose to request a different repayment plan whenever you’d like. Your loan repayment schedule will include when your first payment is due, how many payments you’ll make, and the amount of each payment and how often you’ll make payments. Your monthly payment amount will depend on your repayment plan.

Where you’ll send your student loan payments depends on what type of loan you took out.

  • Direct loans your loan servicer

  • FFEL loans owned by ED your loan servicer

  • Federal Perkins Loans — your school or the billing agency your school designated

  • Private loans — you need to confirm with your lender how to repay your loan

Federal student loan repayment plans

Private student loan repayment plans vary greatly by lender. But if you take out a federal student loan, these are your potential repayment plan options and how they’ll affect how much interest you’ll pay over the life of the loan.

Standard Repayment Plan

  • Eligible loans: Direct Subsidized and Unsubsidized Loans

  • Payment time frame: Within 10 years (10 to 30 years for Consolidation Loans)

  • How it affects payment: You’ll usually pay less interest over time than under other plans.

Graduated Repayment Plan

  • Eligible loans: Direct Subsidized and Unsubsidized Loans

  • Payment time frame: Within 10 years (10 to 30 years for Consolidation Loans)

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Extended Repayment Plan

  • Eligible loans: Direct Subsidized and Unsubsidized Loans

  • Payment time frame: Within 25 years

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Revised Pay As You Earn Repayment Plan (REPAYE)

  • Eligible loans: Direct Subsidized and Unsubsidized Loans

  • Payment time frame: Within 20 or 25 years, as any outstanding loan balances are forgiven after 20 years (undergraduate study) or 25 years (including graduate or professional study loans)

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Pay As You Earn Repayment Plan (PAYE)

  • Eligible loans: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students, and Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents

  • Payment time frame: Within 20 years, as any outstanding balance on your loan is forgiven after 20 years

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Income-Based Repayment Plan (IBR)

  • Eligible loans: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, all PLUS loans made to students, and Consolidation Loans (Direct or FFEL) that do not include PLUS loans (Direct or FFEL) made to parents

  • Payment time frame: Within 20 or 25 years, as any outstanding balances will be forgiven after 20 years or 25 years (depending on when you received your first loans)

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Income-Contingent Repayment Plan (ICR)

  • Eligible loans: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students, and Direct Consolidation Loans

  • Payment time frame: 12 years, with any outstanding balance forgiven after 25 years

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Income-Sensitive Repayment Plan

  • Eligible loans: Subsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans

  • Payment time frame: Within 15 years

  • How it affects payment: You’ll usually pay more interest over time than under the 10-year Standard Plan.

Compare student loan refinance rates from various lenders in one place using Credible.

How to pay off student loans: 8 tactics to consider

Paying off student debt takes budgeting and discipline, whether you pay them off according to your original repayment schedule or try to do it sooner. Here are eight tactics that could help.

Build a budget

Incorporating your monthly student loan payments into your budget will help ensure you never miss a payment. If there’s extra wiggle room in your budget, try to put more toward your student loan payments than scheduled so you can pay your loan off early and save on interest.

Make a debt plan

It’s important to have a plan for how you’ll avoid accumulating more debt (like credit card debt) while you’re paying off your student loans. For example, your plan should include paying off credit card bills in full every month. It may also include saving for a large down payment on a new car to get a smaller auto loan. The less debt you have to focus on repaying, the better.

Boost your income

Increasing your income will provide you with extra funds to put toward your student loan payments. You can take on a side hustle such as tutoring, food delivery, or freelancing to help you earn extra money while you work toward repaying your student loan debt.

Set specific and achievable goals

Consider setting SMART goals — (S)pecific, (M)easurable, (A)chievable, (R)elevant, and (T)ime bound — to help you focus and to make it easier to visualize exactly how you’ll reach your goal of paying off your student loans.

Pay more than the minimum payment

If at all possible, put additional money each month toward your student loans, even if you can only afford to make one small extra payment. Over time, these small payments will add up and you’ll pay your loans off faster, which will help save money in interest.

Avoid lengthening your loan term

When refinancing or consolidating, try to avoid taking out a new loan with a longer term. The shorter your loan term is, the less you’ll likely pay in interest.

Consolidate and/or refinance

Consolidating and refinancing can help you save money if you can get a lower interest rate or loan term. Consider your options here carefully, because if you refinance federal loans into a private loan, you’ll lose valuable federal protections like having access to federal loan forgiveness programs, and income-based repayment plans, deferment, and forbearance.

If you’re ready to refinance, use Credible to compare student loan refinance rates.

Leverage tax deductions and credits

If you can afford to start paying off your loans before you graduate, try to put any education-based tax credits you receive toward your loans. The American Opportunity Credit lets students claim up to $2,500 per year for the first four years of college, and the Lifetime Learning Credit allows for up to $2,000 per student per year. And once you’re out of school, be sure to take the student loan interest deduction on your federal income taxes, provided you’re eligible for it.

An alternative to paying off some federal student loans

To repay your loans faster and easier, you may want to look into your federal student loan forgiveness, cancellation, and discharge options, especially if you’re struggling to repay your student loans.

While those three terms essentially mean the same thing (you won’t have to keep making student loan payments), they’re used differently. Forgiveness and cancellation typically refer to not having to make payments on your loans because of your job, whereas discharge means you won’t be required to continue making payments for other reasons, such as becoming disabled or having the school you received your degree from close.

Here are the federal forgiveness, cancellation, and discharge programs you need to be aware of, and which loans they apply to.

  • Public Service Loan Forgiveness — Direct Loans

  • Teacher Loan Forgiveness — Direct Loans and FFEL Program loans

  • Closed School Discharge — Direct Loans, FFEL Program loans, and Perkins Loans

  • Perkins Loan Cancellation and Discharge — Federal Perkins Loans

  • Total and Permanent Disability Discharge Direct Loans, FFEL Program loans, and Perkins Loans

  • Discharge Due to Death — Direct Loans, FFEL Program loans, and Perkins Loans

  • Discharge in Bankruptcy — Direct Loans, FFEL Program loans, and Perkins Loans

  • Borrower Defense to Repayment — Direct Loans

  • False Certification Discharge — Direct Loans and FFEL Program loans

  • Unpaid Refund Discharge Direct Loans and FFEL Program loans

Jacqueline DeMarco has been a personal finance writer for over seven years and is a contributor to Credible. She has contributed content to more than a dozen financial brands, including LendingTree, Credit Karma, Fundera, Chime, MagnifyMoney, Student Loan Hero, ValuePenguin, SoFi, and Northwestern Mutual.

The post How to Pay Off Student Loans: 8 Tactics appeared first on Credible.