How To Create A Plan To Payoff Your Student Loans

January 01, 2020

Once you decide to tackle your student loans, it is important to be proactive and work student loan debt management into your overall financial plan. When it comes to managing student loans, here are some action steps that may help you reach your financial goals related to paying down student loan debt:  

How much do you owe? 

Before you can create a plan to pay off student loan debt, you need to assess how much and what type (federal vs. private) of student loan debt you have. You also need to determine the terms of your loan(s) including the length of the loan, interest rate, minimum required payment, and payoff date. 

Action Step 1: 

  • Determine the amount of federal loans borrowed (Direct, FFELP, Perkins & Grad PLUS) and contact information for the servicer of each loan via the National Student Loan Data System at StudentAid.gov. For Private Student Loans contact your loan servicer directly. If you are unsure of the private lender, review your credit report for free.  

Estimate your payoff date 

Determine how long it will take to be student loan debt-free (and the total cost of debt). After organizing and possibly refinancing your various student loans, you are able to use a student loan calculator to see when you will be debt-free. If you continue to make the minimum required payments, this figure is much easier to calculate since it will be based primarily on your original loan payoff date. However, many people are motivated by the desire to reduce the cost of borrowing and want to see how extra payments help them in the long run.  

Action Step 2: 

  • For Federal Student loans use this Loan Simulator  to estimate federal student loan payments under various repayment plans (standard, graduated, pay as you earn, income-based, income-contingent, etc.). For Private Loans, try the Cost of Credit Calculator. 

Refinance or consolidate? 

Another proven method to lower the cost of borrowing and put more of your money to work chipping away at those student loan balances is to refinance or consolidate loans to a lower interest rate (if available). Just remember that extended repayment plans may lower your monthly payments but they can also increase the total interest paid over the life of your loan, so you might want to try to stick with the shortest loan term you can comfortably afford. Keep in mind that if you are refinancing federal loans with a private loan you may be forfeiting flexible repayment options offered by federal loans. Also review if you are eligible for Public Student Loan Forgiveness. You will need to maintain the Federal Loan in the proper repayment plan in order to remain eligible.  

Action Step 3: 

  • Look into refinancing your private loans to get a lower interest rate. Investigate if refinancing a federal loan is the right move for you. 

Check for employee benefits 

While most employers do not currently have a student loan repayment plan, more and more companies are offering special deals on student loan refinance programs like SoFi or actual repayment plans like Tuition.io or Vault.   

Action Step 4 

  • If your employer does offer some type of assistance, make sure you’re fully aware of the rules so you can take advantage. 

Free up extra cash 

Instituting a budget can help you monitor and track your spending while setting limits in advance. This process will enable you to identify potential areas to cut back spending or free up extra dollars that may then be applied to your highest interest debt (or the loan with the lowest balance if you want a quick win). The Debt Blaster calculator  helps you see how extra payments can fast track the loan payoff process.  

Action Step 5 

  • Pay the minimum on all loans and put extra dollars towards the highest interest rate student loan.  But also consider your other financial goals before making extra payments on student loans.   

Student loan payments do not have to be a constant burden. Whether you are already overwhelmed by your student loans or simply want to reach a state of financial freedom a little faster, there are a variety of repayment options that can save you significant money. The most important thing is to make sure your student loan repayment strategy fits into your total financial plan and meets your short and long-term objectives.