The Modest Wallet is a free digital publication delivering its readers simple personal finance solutions. We regularly partner with brands that have products and services that will help our readers. Some of the links in this post are from our partners. How we make money.
There’s no way to get around it, student loans are a burden. Unfortunately, they are a necessary evil that many of us must endure in order to secure a stable career and promising financial future for ourselves and our loved ones. But when you are still being weighed down by the payments five or ten years after you finish your post-secondary education, potentially even longer depending on the school and program you attended, they might seem inescapable, leaving you to question if it was really worth it to take on all that debt and stress, just to have it cut into your hard-earned paycheque for years after.
Fortunately, you can eliminate some of the stress and worry by paying off your student loans ahead of time. That might sound impossible if your loan payments are leaving your finances stretched thin, but it’s something that anyone can manage, and it is easier to do than you might think! Keep reading to find out how you can take months or even years off of your student loan repayments and save yourself lots of hard-earned money that would have otherwise gone to paying off unnecessary interest.
Pick the right repayment plan
Selecting the right repayment plan should be one of your first considerations when taking on student loans and working to repay them, but there are a number of options available for you to choose from, and it can be difficult to know which option is the right one for you when deciding how you will pay back your student loans.
Each repayment plan has its own unique conditions and comes with a different repayment term, which is the amount of time you have in which to pay back your loan. Additionally, some repayment plans take your income and family status into account when determining how much your payments will be. Below is a basic outline of each repayment plan option available to you.
Traditional Repayment Options
All federally issued student loans qualify for traditional repayment plans, this includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation Loans, Subsidized Federal Stafford Loans, Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.
Traditional repayment plans offer you three options, including Standard, Extended, and Graduated repayment plans.
The Standard Repayment option gives you a 10 year fixed rate loan term, meaning that your monthly payment amount will be consistent each month with the loan being repaid at the end of the ten-year term. This is as simple as repayment options get, but may not be an option for those with larger student loan debt, lower-income, or other factors that need to be considered,
The Extended Loan Repayment option is much the same as the Standard Repayment option, it’s also a fixed-rate plan with consistent monthly payments, but the loan term is over 25 years instead of 10. The extended loan term can be very helpful if you are not in the best financial position, but it’s important that you understand that you will pay much more in interest over your repayment term.
The Graduated Repayment option has a fixed ten-year term, but with a varied scaling payment plan. For the first two years of the plan, your monthly payments will be fairly modest before scaling up. Every two years the amount due for your monthly payments will increase until the ten year loan period has completed and your student loans are paid off.
Income-Driven Repayment Options
Income-Driven Repayment plans are a little more involved than your traditional student loan repayment options, to qualify you will have to verify your income and family status each year that you are repaying your loans as your monthly payment amount and loan term is variable and dependent on your financial status and family size.
This type of repayment plan is designed to help people who may have student loan debt that exceeds their income level as well as those who have a higher income but are supporting a family and cannot put as much towards their loans. Your monthly payments will typically be set between 10% and 20% of your discretionary income as determined by your income level and the number of dependents.
Income-Based Repayment (IBR)
Income-Based Repayment is not something available to everyone with student loans, you must prove that you are dealing with a partial financial hardship to qualify for this type of plan. People with loans beginning on or before July 1, 2014, you will be given a repayment term of 20 years with monthly payments equivalent to 10% of your discretionary income. Loans taken on After July 1, 2014, have a repayment term of 25 years and monthly payments that are equal to 15% of your discretionary income. This type of repayment plan is not available to those with federal loans that were taken out by parents on their behalf.
Income-Contingent Repayment (ICR)
Income-Contingent Repayment plans are fairly straightforward, they have a pre-set term of 25 years with payments set at 20% of your discretionary income. Unlike the Income-Based Repayment option, this is one of the only income-dependent repayment options that are available to those with student loans borrowed by their parents.
Pay As You Earn (PAYE)
The Pay As You Earn repayment plan is very similar to the Income-Based Repayment option. You will have to prove a partial financial hardship to qualify, in addition to having taken your loans on or before October 1, 2007, with no prior loans outstanding, and gave received at least one loan disbursement on or following that date.
PAYE repayment has a set 20-year term and your monthly payments will be set at 10% of your discretionary income.
Revised Pay As You Earn (REPAYE)
The Revised Pay As You Earn plan is available to anyone with federal student loans. Unlike other income determined repayment plans, your spouse’s income will be taken into consideration regardless of if you file taxes separately.
Monthly payments are set at 10% of your income, with a 20-year term for undergraduates, and a 25-year term for graduate students.
Undergraduate borrowers on an IBR, PAYE, or REPAYE plan who are unable to pay off their student loan balance by the end of the loan term due to insufficient discretionary income will have the remaining balance forgiven. Graduate students using REPAYE are also eligible for loan forgiveness after 25 years of repayment. Any amount forgiven will be taxed as income in both scenarios.
Take advantage of Public Student Loan Forgiveness if you are eligible
Public Student Loan Forgiveness (PLSF) is only available to those who have full-time employment with a qualifying employer in the public service sector. Qualifying employers include government organizations, non-profit organizations without 501(c)(3) status, 501(c)(3) organizations, AmeriCorps, Peace Corps, and others.
You need to be enrolled in one of the previously mentioned repayment plans to qualify and will need to make 120 payments on any direct loans before your debts will be forgiven.
This is a good program to be aware of and can be a great help to those with lower incomes in public service jobs, but it shouldn’t be seen as a guarantee, most applicants are rejected despite having seemingly met all of the necessary requirements. That said, if you think you may qualify it’s worth submitting an application.
Start repaying your loans as soon as possible
The earlier you can start paying back your student loans, the better. It might seem obvious, but it really does make a difference, especially in terms of the amount of interest you accrue on your debt.
The best time to start repaying your student loans is actually while you are still in school. If you already have a job on the side, it’s a really good idea to put as much of your income as you can spare towards your loans to get ahead, and if you aren’t already working you should make it a priority to start bringing in money.
If your course load doesn’t allow you to take on a regular part-time job, consider signing up for something where you set your own hours. Thanks to the rise of ridesharing and food delivery apps, there’s no shortage of shift work available.
Don’t have a car? No problem! There’s plenty of freelance work available online without a set schedule, allowing you to take on as much or as little work as you can handle from the comfort of your dorm, local coffee shop, or campus library.
Draft a budget and stick to it
If you don’t have a budget, you are missing out on one of the easiest ways to pay down your debt faster and put your money to work for you. Even worse, you are probably throwing away more money than you realize.
Establishing a budget will make it easy for you to see how much money you actually have, and to discover areas where you can cut back and free up more income to put towards your student loans.
Need some help getting started? We’ve got you covered with our comprehensive guide to budgeting.
Make more than the minimum payments
If you are only making the minimum payment on your student loans, you may feel like you’re just treading water and not getting anywhere with cutting down your debt, and you’d be right. While you are fulfilling your obligations by making the minimum payment, you might not even be paying enough to stave off the interest your loans are accruing, meaning you’ll be stuck paying off your loans almost indefinitely.
Even if money is tight and you feel like you can’t afford to pay more than the minimum, it’s worth looking into how you can shift your finances or bring in some extra income for a while to cut down your debts, if you don’t you’ll end up paying a lot more for your education unnecessarily and that’s something you really can’t afford.
Switch your payments to biweekly
Instead of making one monthly payment split your payment into two, paying half of the full amount biweekly. It’s a small change but it will add up to you making an extra full payment each year with next to no effort on your part.
Set up automatic payments
Switching from manual to automatic payments won’t make a large impact on your student loans, but every little bit counts. Transitioning over to an automatic payment schedule will make it so that you never have to worry about missing or submitting a late payment, and many loan providers actually offer small discounts or reduced interest rates for making the change.
Maintain the low-cost lifestyle you had as a student
When you’ve finally finished school and put the dorm room life behind you, it can be tempting to enjoy the fruits of your labour with a few changes to your lifestyle. For many this means swapping the diet of simple and cheap home-cooked meals for something a little more indulgent, ditching the roommates for a space all your own, and treating yourself with your increased income, but stop and think about it, can you really afford these extras when you have thousands of dollars in debt to repay?
Sticking with the frugal student lifestyle for a little longer now while you are still accustomed to it can save you a lot of headaches and give you more room to enjoy luxuries later on. Here are a few ways keeping it simple can help you pay off your student loans ahead of time.
Keep the roommates around
While having an apartment all to yourself might be nice right out of school, it isn’t a necessity, and living in shared accommodations is one of the best ways to reduce your monthly bills and free up extra money to put towards your student loan debt.
Living with roommates doesn’t just lower your rent, it often means splitting the cost of other services you would have to pay for anyways, like utilities and internet, and if your roommate is amicable you can lower your grocery bills by buying in bulk and splitting the cost. The savings only grow with additional housemates, so if you have the room, consider taking on more than one.
If you absolutely can’t stand the idea of sharing your space, look for a place that just covers your needs. Yes, living in a spacious and modern two bedroom downtown would be nice, but if a bachelor apartment closer to your office is more in your price range, it’s a much better option. You’ll thank yourself later when you’re enjoying your life free from student loan debt.
Stick to your student diet
If you’ve already spent four years living off of ramen noodles and peanut butter and jam sandwiches, another year or two isn’t going to kill you. Eating out and cooking fancy meals is an expensive luxury, one that you can live without. Splurging on just one meal of taking out a week can easily add up to more than $500 a year, and the costs aren’t any better for eating organic or cooking a nice dinner every week. Sticking to the basics is one of the best ways to save money that you can use to pay off your student loans faster.
Avoid taking on unnecessary expenses
This may seem obvious, but it’s often easier said than done. When adjusting to life in your new career, it can be easy to miss the little expenses you pick up in the transition, and to justify other costly decisions.
For example, it’s not uncommon for people at this stage in life to trade in their older used car, but if you decide to upgrade, financing a brand new vehicle is a much larger expense than getting a new pre-owned car, or just keeping the vehicle you have if it’s still running smoothly.
But it isn’t just big financial commitments you need to consider when it comes to money, it’s often the little things that add up and do the most damage.
Picking up a coffee every morning before work, eating out on Fridays, and signing up for cable (or multiple on-demand streaming services to get access to all of your favourite shows), might seem harmless up front, but the costs add up fast. A few small add ons here and there can quickly become hundreds or even thousands of dollars a year that could have been put towards your student loan debt.
Bring in extra money
If you can manage it, taking on extra work for a while to quickly pay down your student loans and avoid racking up interest is a smart decision. Obviously, not everyone has the time or ability to get a second job, which is where non-traditional options like freelance, delivery work, and ride-sharing can be useful, as we mentioned earlier, but it’s still not a perfect solution for everyone.
Luckily, there are lots of ways you can bring in some extra money and there’s sure to be an option to suit everyone. If you want to learn more, check out our guide to learn a few different ways you can make extra money on the side.
Make the most of the money you have
You might feel like you are already putting as much money as you can afford towards your student loans, but you might be able to stretch your dollars further than you think to maximize your current income.
If you are still in school, many businesses and services offer a student discount that will allow you to save money on all kinds of things including food, phone plans, car insurance, public transportation, entertainment, clothing, haircuts, technology, and even Amazon Prime.
If you are no longer eligible for a student discount, you can still make more out of less. Many colleges and trade schools offer discounted services to the general public on a number of necessities including hair cuts and dental work. The service you get will be up to par and monitored by a professional but carried out by a student as part of their training.
You can also save significant amounts of money clipping coupons, buying in bulk, shopping sales, and using services like groupon to save money on things like automotive work.
All of these savings add up and if you put the extra money towards your loans, not only will you be paid off sooner, but you’ll save even more money by avoiding costly interest charges, plus you might establish some money-saving habits that will serve you for years to come.
But even without making the extra efforts to save, you can still do more with the income you already have. If you are not a salaried employee, there will be months where you receive more payments than usual, since these cheques are not included in your regular budget you should easily be able to put them towards your student loans. The same idea applies to tax rebates, annual bonuses, and any income earned through annual raises. If you stay consistent with your budget, even when you have additional funds, you will be able to carve a large chunk out of your student loan debt in no time.
Consider refinancing your loans to lower your interest rate
Refinancing might not be the answer for everyone or every loan, but in the right scenario, it can be an incredibly useful tool that saves you money and takes years off of your repayment term.
The key to effectively refinancing your loans is to focus on the ones with the highest interest rates, and only moving forward with the refinancing if you can negotiate a better interest rate.
You’ll probably want to avoid refinancing if you have federal student loans issued through a private lender as you might disqualify yourself from beneficial options such as income-based repayment options, loan deference, and forbearance.
If you really want to maximize the impact of refinancing your loans, don’t lower your monthly payment with your interest rate. When you refinance you will likely come out of it with a reduced monthly payment to match your lowered interest rate, but if you continue to pay the amount of your previous monthly payments before renegotiation you can take months or even years off of your debt repayment.
Use your resources
You have more options than you think when working to repay your student loans, it’s important that you educate yourself, explore your options, and make use of the resources you have available, or you’ll end up paying more than you need to.
It’s becoming more common for companies to offer some type of student loan forgiveness or debt repayment program, talk to your boss or HR department to discuss your options. If your company doesn’t offer anything directly, you may be eligible for a similar service through a benefit society or federal program. If nothing is available and you are in a good position to change employers or already looking for a new job, add repayment assistance to your list of considerations when applying for jobs, the potential benefit is huge.
Your employer isn’t the only one that can help you cut down your student loans though, there are plenty of resources available that you might not be aware of. If you are working in the public service sector, there are lots of programs and grants to help those providing essential services to pay off their student loans. There are numerous loan forgiveness and repayment programs established to help Doctors, Nurses, Teachers, Government Workers, and similar.
Additional repayment programs aren’t the only thing at your disposal, you may qualify for tax credits or reductions depending on your loan amount, type, and career. These refunds add up quickly and can make a sizeable impact on your outstanding student loans.
Get our free Personal Finance Blueprint to learn everything you need to know to build wealth.
Plus our best money tips delivered straight to your inbox.
Ricardo is an entrepreneur, investor and personal finance nerd who enjoys spending time with his family and friends, travelling and helping others achieve their financial goals. Ricardo has been quoted as a personal finance expert in several online publications including Healthline, Bankrate, GOBankingRates, MSN Money, Yahoo Finance, U.S. News & World Report, Forbes and USA Today.