How to pay off $30K in student loans

There are multiple strategies that you can use to pay off $30,000 or more of student loan debt, such as creating a repayment plan or refinancing. 

Repaying your student loans can feel overwhelming at times, but it’s critical not to miss your monthly payments or allow your loans to default.

By repaying your loans, you’ll positively impact your credit score, and pay as little interest as possible. With less debt and an improved credit score, you can accomplish your other financial goals. 

• Develop a repayment strategy
• 4 ways to pay off student loans early
• How extra income helps pay off debt faster

Develop a repayment strategy

The first step to overcoming about $30,000 in student loans (or more) is to create a repayment strategy. The right repayment strategy will be the one that best aligns with your financial goals and income level.

Follow these general steps to conceive your repayment strategy:

1. Track your loans. List your loan amounts and interest rates from highest to lowest.
2. Review your loan terms. Determine current pay-off dates and if there are any prepayment penalties. 
3. Create a budget. Create a budget that you can comfortably stick to. Consistency is key in maintaining substantial progress in paying down your student loan debt.
4. Prioritize payments. For instance, it may save you in interest expenses to pay down the higher-interest-rate loans first (debt avalanche method) or you may feel like you’re making more progress by paying off the lowest-amount loans first (debt snowball method).

Choosing a federal repayment plan

If all or some of your loans are federal student loans, you have access to various federal repayment plans. Loan holders with PLUS, Stafford, Federal Family Education Loan (FFEL), and Direct subsidized or unsubsidized federal loans qualify for the following repayment plans. However, private loans do not qualify. 

• Standard Repayment Plan: This plan is the default repayment plan for all borrowers. Payments are a fixed monthly amount that ensures your loans are paid off within 10 years. However, your monthly payments are typically higher and it may be difficult to make payments every month depending on your income.
• Extended Repayment Plan: If you find your payments are too high on the standard repayment plan, you can instead choose fixed monthly payments spread out over a period of up to 25 years. To qualify for this plan, you must be a Direct Loan borrower with more than $30,000 of outstanding loan debt. While the payments are lower, your interest will build over time, keeping you in debt longer.
• Graduated Repayment Plan: This plan is a type of extended repayment plan, but sets lower monthly payments to start and then your payments increase every two years. This plan typically pays off your loan within up to 10 years (up to 30 for Consolidation Loans), much like the Standard Repayment Plan, but your payments increase over time. However, the increase in payments every two years could outpace your actual income growth as you progress in your career.
• Income-driven repayment plans: These plans adjust your monthly payment based on your income and family size. Four plans are available, each with different eligibility requirements. They include:
  • Pay As You Earn, which keeps your payments at 10% of your discretionary income (but never more than the Standard Repayment Plan amount) and the remaining balance is forgiven after you’ve made payments for 20 years. However, the longer repayment period will lead to paying more in interest over the life of the loan.
  • Revised Pay As You Earn also keeps your payments at 10% of your discretionary income, but the government pays the interest on your subsidized loans and half the interest of your unsubsidized loans for three years. This plan also has a longer repayment period lasting from 20 to 25 years.
  • Income-Based Repayment takes out a percentage of your discretionary income, but how much depends on when you took out your loan: 10% if you took out a loan on or after July 1, 2014, and 15% if you took out your loan before that date. Under both percentages, your monthly dues would never be more than the Standard Repayment Plan amount.
  • Income-Contingent Repayment has two options to get you a lower payment. The plan either adjusts your fixed monthly payment based on your income over a period of 12 years, or 20% of your discretionary income, divided by 12.

Good to Know: It’s important to note that borrowers who choose the Standard Repayment Plan typically pay less over time than when choosing other plans. Also, the standard plan is the fastest route to a zero balance.

4 ways to pay off student loans faster

Changing repayment plans can be useful for many federal loan borrowers, but, if you have private loans, you might need to find a different strategy. Banks, credit unions, and online lenders typically don’t offer government-like repayment plan adjustments.

Fortunately, there are multiple options to help you pay off $30,000 in all types of education debt.

1. Making extra payments

Making payments in addition to your minimum monthly payment can have a dramatic impact on your loans. Your interest accrued is calculated at the start of each month based on your outstanding balance. By making additional payments in the same month, the following month’s interest will be calculated from a lower balance. 

Pros

• You can pay off your debt sooner.
• You can choose the amount and adjust it at any time.
• Decrease the interest that accrues, saving you money.

Cons

• Inconsistent extra payments may not help as much as consistently paying extra.
• Depending on your loan amount, small extra payments may not reduce your overall interest expenses significantly.
• Extra money can no longer go toward an emergency fund or other savings vehicles.

2. Student loan forgiveness and repayment assistance

If you took out a federal student loan, you may be eligible for forgiveness from the government, depending on your eligibility. Additionally, you can take advantage of forbearance and deferment in cases of financial hardship. Other federal student loan forgiveness programs include: 

• Public Student Loan Forgiveness (PSLF): Eligible government or not-for-profit employees can have their loan balances forgiven after 120 qualifying monthly payments under a qualified repayment plan. 
• Teacher Loan Forgiveness: Qualify for a set amount of relief (up to $17,500) if you complete five years of full-time and consecutive years of employment teaching in low-income schools, among other qualifications.

It should be mentioned that there are no federal forgiveness programs available for private student loans. If you’re experiencing hardship, reach out to your lender for options.

There are also repayment assistance programs from state governments, law schools, and private employers. Some examples include:

• The State Loan Repayment Program provides help to repay your student loans in 46 states, but only if you work in the healthcare field. 
• Loan repayment assistance programs can help with repaying private loans for those working in the government or public interest groups. Certain law schools and bar associations offer this option. You typically need to be a U.S. resident along with other varying requirements. 

Pros 

• Your educational debt is forgiven after meeting a certain set of criteria depending on the program.
• You can focus on other financial goals once your debt is forgiven or paid off.
• There’s a variety of programs available to choose from.

Cons

• Not all borrowers or employees are eligible for each program.
• You might be subject to tax on your canceled loan amount.
• Partial or full repayment assistance can take years to achieve.

3. Student loan refinancing 

You can refinance student loan debt, regardless if your loans are federal or private. However, it’s best not to refinance your federal student loans, as you’ll lose access to government protections such as forgiveness, forbearance, and deferment. It’s best to consolidate your federal loans into a Direct Consolidation Loan, which consolidates your loans into one new loan, with a lower monthly payment.

Refinancing essentially pays off your existing loan and replaces it with a new loan. Your new lender may extend certain benefits to you when you refinance, such as better terms or lower interest rates. 

Pros

• You could secure a lower interest rate on your loans.
• You might have a shorter repayment term that can help you avoid accruing unnecessary interest.
• You have the option of a longer term — and lower monthly payments — if that’s better for your budget.

Cons

• It can be difficult to qualify for refinancing if your credit score isn’t ideal.
• If the new interest rate is variable, you could pay more over time in interest rate expenses.
• Refinancing federal loans into private loans will automatically make you ineligible for forgiveness or assistance programs through the federal government. You’ll also lose additional federal protections such as forbearance and deferment.

4. Federal loan consolidation

As mentioned above, federal student loan consolidation involves combining multiple loans with different interest rates and terms into a new loan with one interest rate and term. 

Consolidating can be a great option to lower your monthly payment while also retaining access to government protections and assistance programs such as Income-driven repayment plans. However, consolidation can lead to a longer repayment term of up to 30 years and paying more in interest over the extended life of the loan. 

Pros

• A single loan with one monthly bill and a potential lower monthly payment.
• Federal Direct Consolidation Loans still have access to forgiveness and repayment assistance options.
• Direct Consolidation Loans come with a fixed interest rate, meaning your rate is weighted based on the average interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent.

Cons

• You could ultimately have a longer repayment term to pay off the loan.
• A longer repayment term means paying more in interest.
• You may lose certain benefits unique to your loan, such as rate discounts or principal rebates. However, you don’t have to consolidate all of your loans.

To see if refinancing or loan consolidation is right for you, reach out to your loan servicer or lender. They can provide you with your options and help you understand their benefits and drawbacks. 

You can then apply for these options through either your current servicer (in the case of federal loans) or you can shop around and compare rates from student loan refinancing lenders. 

The impact of additional income on paying off student loans

You can use a student loan calculator to see how much an extra $100 per month can help you pay down $30,000 in student loans faster. 

For example: If you have $30,000 in loans with a 10.00% interest rate and a 10-year term, you’ll pay $396 per month, accrue $17,574 in interest, and pay $47,574 in total. However, if you pay $496 each month, you’ll only pay $11,895 in interest and $41,895 in overall payments. That’s a savings of $5,678.

Consider applying any extra income toward payments, such as:

• Income tax refunds or government stimulus money
• Bonuses at work
• Ask for monetary gifts for holidays
• Extra income from side hustles, part-time jobs, and selling unwanted possessions

The importance of sticking to the repayment plan

It’s important to stick to your repayment plan to avoid delinquency and defaulting on your student loans. Both situations include severe penalties like the loss of federal repayment benefits and safeguards, damage to your credit report, and garnished wages.

To change your federal student loan repayment plan, contact your loan servicer. If you need to adjust your strategy for private student loan repayment, weigh your options and make the decision that will enable you to at least continue making your minimum monthly payments on time. 

If you need help staying motivated, ask your friends and family to help. For more serious questions, you might consult a student loan counselor via a National Foundation for Credit Counseling-approved agency. You may also create a visual representation of your loan progress so you can see how each monthly payment gets you closer to your goal.

Related: Learn more about refinancing your student loans on Credible.com