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6 Student Loan Repayment Strategies That Actually Work

Ben LuthiPublished on

student loan repayment

Graduating from college is an exciting milestone, but when your student loan payments start six months later, you might start wondering why you ever left school.

According to the most recent data available, borrowers in the Class of 2016 graduated with an average student loan debt of $37,172. The sooner you get rid of that debt, the more freedom you’ll have to work toward other important financial goals.

The Standard Repayment Plan for federal student loans is 10 years. But with the right student loan repayment strategy, you can potentially offload the burden sooner. Here’s how to pay off student loans more quickly.

6 student loan repayment options that will eliminate your debt faster

Ultimately, the best way to pay off student loans is the way that works for you. As you learn different strategies, focus on which ones work within your budget and your goals. In our opinion, the simple fact that you’ve chosen a strategy at all is probably more important than which specific strategy you use. Having a plan helps ease the stress that a mountain of student loan debt causes, and can keep you motivated to tackle it head-on.

Now, let’s go through some proven ways to help you pay off your student loans.

1. Stick with the Standard Repayment Plan

The U.S. Department of Education offers various repayment plans to borrowers, allowing you to extend your term to up to 30 years. While these student loan repayment options can be a tempting way to lower your monthly bill, they’ll ultimately cost you more in interest charges over the life of your loans.

With the Standard Repayment Plan, the worst-case scenario is that you become debt-free after 10 years. That’s still a long time, but at least you won’t be worrying about student loan payments all the way into retirement.

2. Debt avalanche

The debt avalanche is a special method of repaying debt that can help you pay off student loans fast. Here’s how it works:

  1. Make the minimum payment on all your loans, but add an extra payment each month to whichever loan has the highest interest rate.
  2. Once the loan with the highest interest rate is paid off, take that loan’s monthly payment and your extra payment and put it toward the loan with the next-highest interest rate.
  3. Repeat this process until all of your loans are paid off.

The idea is that your repayment plan gains more and more momentum as you pay off each loan so that by the time you’re working on the final loan, you’re putting all the money you’ve paid toward all of your loans each month toward it, paying it down quickly.

If you’re not sure where to get the money to make an extra payment each month at the start, consider cutting back on your budget or redirecting the extra income you get from a raise. It may take some time for your avalanche to start gaining strength, but it goes faster as time goes on.

3. Debt snowball

The debt snowball method works the same way as the debt avalanche method, but with one key difference: instead of focusing on the debt with the highest interest rate first, you start with the loan that has the smallest balance.

The idea behind this approach is that as you pay off smaller balances quickly, you’ll maintain motivation through all the small wins you accumulate. On the flip side, the debt avalanche method typically can save you more money because you’re eliminating higher-interest debts first.

4. Debt snowflake

The debt snowflake method focuses more on how you make your extra payment each month, regardless of whether you’re starting with the lowest balance first or the highest interest rate. In fact, you don’t even have to do the snowflake method in conjunction with the avalanche or snowball.

Instead of budgeting for a specific amount to pay on top of your minimum payment once a month, you make multiple payments throughout the month whenever you receive some extra cash. For example, if you do a yard sale, get a tax refund, or receive some cash for a birthday or other holiday, you put that toward the loan of your choice instead of spending it.

These little “snowflake” payments may not seem like a lot individually, but they can add up over time and cut a significant chunk out of your student loan debt.

5. Seek loan forgiveness or repayment assistance

The federal government offers a few student loan forgiveness programs that allow certain borrowers to get some or all of their debt forgiven after a certain period. To qualify for the best forgiveness programs, you typically need to work in a certain career or in a specific area for a set period.

With Public Service Loan Forgiveness, for instance, you need to work full-time for a government agency or eligible nonprofit organization while making 120 qualifying payments.

If you go this route, you’ll have to switch to an income-driven repayment plan with a longer repayment term to qualify.

There are even some private employers, including Fidelity, Aetna, and Penguin Random House, that offer student loan repayment assistance. If you’re on the market for a job, consider asking about that as a benefit option.

6. Student loan refinancing

In addition to trying another repayment option, refinancing your student loans may help you reduce your interest rate, monthly payment, or both. If you can afford it, you may also have the option to shorten your repayment term, which would increase your monthly payment but also give you a brighter light at the end of the tunnel.

Just keep in mind that refinancing your student loans typically requires good credit and solid income. If you haven’t had the chance to build your credit or you’re earning an entry-level salary, some lenders allow you to apply with a creditworthy co-signer, which can help improve your odds of approval. If you enter a few details about yourself in Purefy’s rate comparison tool, and it will automatically tell you where you pre-qualify, and what rates you’ll receive with each lender.

Keep in mind, refinancing federal loans with a private lender will cut your access to federal benefits, including income-driven repayment options and certain student loan forgiveness programs. So think about those benefits before you make a decision to refinance.

The bottom line

There’s no single best way to pay off student loans, so it’s important to do your research and figure out which strategy works best for you. As you learn how to pay off student loans faster, you may start to figure out your own ways to accelerate the process even more.

And if you’re considering refinancing your loans, Purefy’s rate comparison tool is a great starting place. With our easy to use tool, you can compare your actual rates from multiple lenders, and look at your monthly payments and total savings on each refinance option.