When it comes to repaying student loans, everyone’s approach will look a little different.
One borrower might choose an income-driven repayment plan to cap their monthly bills. Another might postpone their payments through deferment, while a third makes extra payments each month to get out of debt faster.
To find out more about the various approaches to paying off loans, I spoke with four different borrowers about their experiences. Here are the strategies they used to manage their student loans without falling behind or going broke.
1. Throwing extra payments at student loans
When Michael Outar graduated from college, he owed $24,000 in student loans. But instead of sticking to the standard 10-year plan, Outar paid off this debt in just two years by making extra payments each month.
How did Outar find room in his budget?
“A neat trick I used to pay off my debt quickly is to cut my spending and pretend like I am spending the same amount of money — but I am actually using the money I saved to pay off my student loans,” said Outar.
Outar cut his spending considerably and put his extra money toward his loans. Now a personal finance blogger at Savebly.com, Outar advises other student loan borrowers to take the same approach.
“Find ways to cut costs or ways to increase your income, and use that money to pay off your student loan debt,” advised Outar. “Throw whatever extra money you have at your student loan debt!”
By making extra payments, you could save money on interest and get out of debt years ahead of schedule.
2. Deferring payments while job searching
While extra payments can save you money on interest and get you out of debt faster, not everyone has room in their budget for this approach. In fact, you might be struggling just to make the regular payment each month.
In this case, postponing payments through deferment or forbearance might be a better strategy. That’s what Jason Butler, owner of My Money Chronicles, chose to do for a couple of years after graduating with $38,000 in student loans.
“It took me a year and a half to find a full-time job after I graduated from college,” said Butler. “I couldn’t pay the loans, so I had to defer them.”
While pausing payments can help, it might also come with some downsides. Unless you have subsidized loans, your debt will continue to accrue interest during this time. Once you resume repayment, you’ll be facing an even bigger balance.
Butler’s loans, for example, grew to nearly $62,000. Still, though, Butler says deferment was the right choice at the time.
“It was helpful, because if I didn’t defer the loans, I probably would have defaulted on them,” he said.
Deferment and forbearance can be useful options, but make sure you understand the downsides of postponing student loan payments, too.
3. Refinancing at a lower interest rate
Once he found a steady job, Butler decided to be proactive about getting his loans out of repayment and paying them off more aggressively.
“I got focused on … paying [off] the debt,” said Butler. After reading about how refinancing can lower your interest rate, Butler decided to refinance his private student loans.
He shopped around with refinancing providers, finally landing on an offer from Earnest. Butler’s new loan had a starting variable interest rate of 5.6% and a repayment term of 20 years, though he plans to pay it off ahead of schedule.
That last point is important, since although a longer loan term translates into a smaller monthly payment, it will also keep you in debt longer, meaning you’ll pay more interest over the life of the loan.
Note too that Butler refinanced private student loans rather than federal ones. While it’s sometimes also worth refinancing federal debt, swapping federal loans for a private refinancing loan means you’ll lose access to income-driven repayment plans and some government loan-forgiveness programs.
4. Applying for Income-Based Repayment
On the standard 10-year repayment plan, finance professor Brandon Renfro was paying $1,000 per month toward his student loans. To reduce this hefty bill, he decided to apply for Income-Based Repayment (IBR).
“I chose to use an income-driven repayment plan so that I could lower my payments,” said Renfro. “IBR lowered [my monthly payments] to $700. That’s a 30% reduction, which certainly isn’t trivial.”
Income-driven plans such as IBR base your monthly bills on how much you make. Depending on when you borrowed, an income-driven plan could cap your payments at 10%, 15%, or 20% of your discretionary income. What’s more, if you still have a balance after 20 or 25 years of on-time repayment, the remainder can be forgiven.
Reducing his monthly bills through IBR not only helped Renfro become a homeowner, but it also allowed him to work as a professor at a private not-for-profit college.
“Although I knew I wanted to be a professor, the existence of student loan programs like IBR … made it much easier, said Renfro. “The general idea behind these types of programs is that it makes jobs that are relatively less-compensated more feasible. I can safely say I’d be in an industry position if it weren’t for [IBR].”
5. Seeking Public Service Loan Forgiveness
Reducing monthly payments wasn’t the only reason Renfro put his loans on IBR. He’s also hoping to get his loan balance wiped out earlier through Public Service Loan Forgiveness (PSLF).
“The Public Service Loan Forgiveness allows borrowers to have any remaining portion of their student loans forgiven after making 120 qualifying payments,” said Renfro. “IBR payments are qualifying.”
Other income-driven plans will also make you eligible for PSLF, which forgives your loans after just 10 years if you work in a qualifying organization.
“Any governmental job or employment at a not-for-profit 501(c)(3) employer qualifies,” explained Renfro. “I am a finance professor at a private, not-for-profit school, so my employment qualifies.”
While PSLF is a great option for public service employees, it’s important to note that the program has become a hot-button topic as of late. Several Republican lawmakers proposed eliminating PSLF with the PROSPER Act, and many borrowers have seen their applications denied on technicalities. Although the program is still running, there’s no guarantee that it won’t disappear in the future.
6. Setting up a side hustle for extra income
After Making Momentum founder Scott Wesley earned his degree, he felt overwhelmed by his student debt burden of $38,000.
“I was entering adulthood and wanted to push forward with my life. This debt felt like a weight around my ankles that I needed to shed ASAP,” Wesley said.
He jumped into action, refinancing his student loans to a lower rate and increasing his monthly payments to get out of debt more quickly. Knowing that cutting his spending could only help so much, Wesley made it his mission to increase his income as well.
“I set a goal of making $1,000 fast in order to test the side-hustling waters and understand what options to make money outside my 9-to-5 were available,” said Wesley. “Freelancing the skills I had through Upwork by waking up at 5 a.m. every day started earning me an additional $1,200 each month.”
In addition to freelancing, Wesley made extra cash through selling his stuff.
“Similar to most people, I had a ton of stuff in my closet,” said Wesley. “I did another audit and sold excess clutter that wasn’t bringing value to my life. This total of $2,500 in electronics, clothes and sporting goods was also immediately put against the principal.”
By setting up additional streams of income, Wesley was able to speed up his student loan repayment timeline from seven years to just three.
7. Avoiding the temptation of lifestyle inflation
For Wesley, increasing his income was no easy feat. Along with finding the willpower to wake up early and hustle, he also had to avoid the temptation to increase his spending.
“As my career income increased, bonuses at work came in, and side hustle streams grew, I didn’t let lifestyle inflation creep in or ‘FOMO’ [fear of missing out] shift the goal I had set,” he said.
Because he was so focused on paying off his debt, Wesley made sure he kept his spending low, even when he had more money coming in.
“I made paying off this debt my top financial priority, as I wanted to rid myself of the stress and lack of freedom it created,” he said.
At the same time, he recognizes that each person’s situation is different, and his approach might not be for everyone.
“Personal finances are of course personal. What worked for me may not be entirely applicable to your situation,” said Wesley. “However, the strategies above are evergreen, and I believe can help those struggling with student loan debt shift their mindset and ideally conquer that ‘balance owed’ sooner.”
If you can find ways to increase your income and cut your spending, you can get out from under the shadow of debt faster than you might realize.
Explore your options for student loan repayment
When it comes to dealing with student loans, there’s no one-size-fits-all solution. Everyone’s situation is different, and what works for one borrower might not work for another.
If you’re struggling to pay your bills, for instance, an income-driven plan, forbearance or deferment could offer relief and help you avoid default.
But if you can find ways to cut your spending or make extra money, then applying some extra payments to your loan could lead you to a debt-free life more quickly.
Inform yourself about your options for repayment so you can choose the best one for your situation.
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