A college degree is a sound investment that can multiply your lifetime earnings and help you achieve a higher and more secure quality of life.
And yet, student loan debt is a major barrier to saving money for many adults.
Debt can also be a barrier to returning to school to continue your education. More than 92 million American adults have had student loan debt at some point, with an average current total debt of $28,950. A typical bachelor’s degree student borrows, on average, $32,880.
Whether you’re considering a return to school and wondering how to invest in your education without taking on too much debt or just hoping for a path to pay down debt, rest assured that there are many paths to a brighter financial future. Try these strategies to fast-track your student loan repayment.
Understand How Interest Works
Repaying your student loans begins with understanding how and when your loans accrue interest. That small percentage might seem unimportant, but it helps determine which loans you should pay first and how much work your repayment money can do for you.
Over time, interest accrual means you will pay double or triple the amount you initially took out in loans. Use this calculator to figure out how much your loan costs you. Repaying your loans even a few years early can save you significant cash.
So how can you put this knowledge to work for you? Begin by reviewing your loans so you know exactly how much they cost you. Unsubsidized loans begin accruing interest while you’re in school, whereas subsidized loans only accrue interest after graduation. If you have unsubsidized loans and can afford to pay down the interest while in school, this can slow the ballooning of your loans.
It’s also important to understand capitalized interest. This is unpaid interest added to student loans during periods in which you don’t make payments. For example, if you seek a student loan forbearance, you may accumulate capitalized interest that ultimately grows the loan balance. Avoiding situations in which you accumulate capitalized interest can help you pay down debt faster.
Armed with this knowledge, consider one of the following methods for paying down your debt more quickly:
Debt Snowball Method
The snowball method isn’t necessarily the fastest method for paying down debt. But many people find it gives them a psychological boost that keeps them pushing forward where other methods fell short.
With this method, you continue making minimum payments on your biggest loans while focusing on your smallest loan. Put as much money toward it as you can each month. When it’s paid off, you’ll get a psychological boost that can inspire you to move on to the next-lowest loan. Keep pushing down the list until you’ve paid them all off.
Debt Avalanche Method
The debt avalanche method is the fastest method for paying off loans because it uses the power of compound interest to your advantage.
Simply list your loans in order from highest to lowest interest rate. Next, make minimum payments on all but the highest interest rate loan each month. Then spend all extra debt repayment money you have on the largest interest rate loan. This slows the process of interest accrual and gets the biggest source of debt (and interest) off your plate first. After you’ve repaid this loan, it’s time to move on to the next one.
More Frequent Payments
Student loan interest is constantly accruing. This means that even small payments can reduce debt over time. Try making more frequent payments. Instead of paying monthly, pay half every two weeks. This adds up to an entire extra payment each year!
Or make periodic payments when you have some extra cash. Ten dollars here and $50 there can add up over the life of your loan. You can combine this method with either the avalanche or snowball method to make a bigger dent in your debt.
Student loan consolidation is a great option if you have several loans from different lenders or institutions with varying interest rates. You’ll have only one payment, making it easier to manage your finances. Federal loans are automatically eligible for consolidation.
In some cases, consolidation may change your interest rate, offering access to a lower interest rate so you can pay down debt faster.
Another option is to repay your loans with a low- or no-interest credit card. Some cards offer zero-interest introductory rates for the first year. This is a great option if you can pay down your debt in a year. But beware: Credit cards have much higher interest rates than student loans, so if you can’t pay down the debt during the low-interest grace period, this is a dangerous option.
Learn About Forgiveness Options
In 2022, the Biden Administration announced its plan to forgive up to $20,000 in student loan debt for Pell Grant recipients and $10,000 for those who did not receive Pell grants. Additionally, if you paid anything toward your student loan during the repayment pause of the COVID-19 pandemic, you may be eligible for a refund of that money.
Contact your loan servicer to explore refund options. You may be able to use the refund to pay down a significant portion of your debt — especially with the total debt burden reduced by as much as $20,000.
The loan forgiveness plan is currently tied up in litigation. The Department of Education believes the litigation is meritless and that loan forgiveness will soon be available. But for now, you’ll need another plan for managing your debt. As of this writing, all interest accrual and payments on student loans are paused through June 30, 2023. Once this period ends, you’ll need to begin making payments.
However, if you make payments during this period, you can pay down your debt faster because interest will not accrue.
You may be eligible for additional student loan forgiveness if you work in public service, participate in a student loan forgiveness program or have certain disabilities. Contact the Department of Education to assess your eligibility. It could be that sticking it out in a job you don’t love for another year or two offers the fastest path to student loan forgiveness. SNU’s financial aid office can also help you weigh your options.
Make a Budget You Can Live With
Once you know how much you need to repay, it’s time to make a budget you can live with so you have more money to put toward student loans. If you’re anxious to repay your loans, you might want to cut all excess from your budget. But the truth is that a budget will only work if you can live with it long term. That means not giving up everything you love.
If you can survive cutting more than you initially planned, that’s great! Throw that money toward your loan. Otherwise, embrace these tactics for realistic budgeting:
Budget for maintenance expenses.
Oil changes, tire changes, seasonal wardrobes and other recurring expenses may not be a part of your monthly budget, but they’re still a predictable part of your life. Save a little from each paycheck to ensure you have enough set aside for these expenses and don’t have to put money on a credit card or delay student loan payments.
Get monthly expenses under control.
Eliminate subscriptions you don’t use, look into cheaper streaming services and assess whether you’re using all your memberships.
Consider how much you’re spending on meals.
Eating out is a major budget item for many people. So too are convenience foods. Try doing meal prep or cooking just one more night per week. You’ll be healthier and save money.
Find more affordable ways to enjoy little luxuries.
Invest in an espresso machine instead of spending $5 a day on espresso. Make your own smoothies. Join an online fitness service or go for walks outside instead of joining a gym.
Monitor your expenses.
Write down everything you spend in a month, then look for areas where you can trim the fat without cutting the joy from your life. An expense tracking app can help you keep track of small items that sneak in and undermine financial health.
Build up a small emergency fund.
For many people — especially those living paycheck to paycheck — unexpected expenses are a huge burden. Having a few hundred dollars stashed away means you won’t have to slow your student loan repayment if you have an unexpected expense like a medical bill or car breakdown.
Bring in more cash.
More money makes it easier to pay down debt. Can you monetize a hobby on Etsy? Sell those old comics you no longer want on eBay? What about freelancing or a side hustle as a driver or delivery person? Even a few hundred dollars a month can make a big difference over time, so get creative.
Track Your Progress and Make it Fun
Repaying student loans — or any debt — is about small victories that accumulate over time. Find ways to monitor your progress. You can make a graph that you fill in over time or use checkbox stickers in a diary. Most importantly, celebrate small victories and build on your successes.
It can also be helpful to make a list of your “whys.” Why are you doing this? To retire early, go back to school or have more money? Try making a repayment schedule and a countdown to your goals, such as “180 months to be debt-free,” “10 years to a new house,” or “three years to a lavish vacation.” Whatever motivates you, make it count and create daily reminders to stay motivated.
Your community influences your life, including what you feel is normal or expected. If you surround yourself with people who spend every last penny, you may feel like an outlier if you don’t do the same. Spend time with people who prioritize long-term financial goals. And if you find yourself struggling, consider that there are additional options for support:
- Get outside support: If you can’t stop spending or compulsively incurring debt, consider speaking with a therapist or joining a program such as Debtors Anonymous.
- Get your family in on the act: Make sure everyone is on the same page. If you and your significant other can’t agree, consider talking to a financial planner or couples counselor.
- Get support online: Reddit, Facebook and other social media platforms have many online support groups for people trying to pay down debt and get their finances under control.
A thoughtful budget, support from your community and student loan relief programs such as student loan forgiveness can help you pay off your student loans in record time.
As you pay down debt, you may consider ways to bring in more income, including going back to school. The right financial aid package can help and doesn’t always have to include a lot of student debt. To learn more about funding your next chapter, download our free guide, “The Complete Guide to Financial Aid.”