I recently celebrated the big Millennial milestone of fully paying off my student loans!
It took me around 8.5 years to pay off my loans, which is definitely a big chunk of my adult life (it’s the entire length of my career, actually) but is much faster than a lot of others in my generation have been able to pay off theirs.
I don’t say that to brag, I say it to emphasize how difficult of a situation Millennial (and soon Gen Z) graduates are put into as they try to get their post-school lives started.
I graduated with around 80k in student loan debt, but all of the loans I took out had uncapped interest rates. I don’t think I need to get on my soapbox to convince you that the system is unfair, so here is my personal experience instead.
When I was applying for loans each semester, there were only certain ones available to me based on my parents’ income and some other personal factors.
The only loans I was able to get had uncapped interest rates, meaning that the loan company could increase my interest rate as high as they wanted in the future. They could do this as many times as they wanted, too.
I did have a partial scholarship of 5k per year, and a couple extra thousand from my parents, but in order to pay the rest of my tuition I would have to accept these uncapped loans, or accept not going back to college the following semester.
So, fast forward 4 years and I graduated with 80k in loans at around 10%-12% interest; by the time my six-month “grace period” ended and it was time to start making payments, my interest rates had shot up to 18%-22%.
Looking back through my old tax returns and documents, I ended up paying back over $100,000 before I finally reached that beautiful balance of 0.
It was a frustrating situation that I couldn’t wait to get out of, and so I did whatever I could to pay off my loans as quickly as possible. I also learned a few things along the way that I would go back and do differently if I could.
Tips for Paying Back Student Loans Faster
I wanted to share my tips and learnings here, in case they can be of help to someone else.
I truly hope that loan forgiveness becomes a widely available thing in the future, but it’s a phrase that has been thrown around since I graduated 9 years ago, so I don’t know if or when that will happen.
Here are five strategies that I think can help you pay off your loans faster!
1. Refinance as soon and as often as possible
This was something my parents continuously recommended to me, and I’m so glad I listened to their advice. If you only do one of these five things (though I really suggest you do more than that) let it be this one.
I had to wait a full two years until my loans were eligible to be consolidated and refinanced, but I jumped on it as soon as I was able to. The company I used is no longer around, but a quick internet search of “Student Loan Refinance” or “Student Loan Consolidation” should help you find some good options.
Let’s talk a bit more about what these things mean.
Typically, someone graduating with student loans has several (I think I had 25-30 loans of varying amounts that added up to the total amount I borrowed). Sometimes they’re all with one company, often they are with different companies, and they almost always have varying interest rates.
Consolidating your loans bunches them all into one, so you have a single loan and amount that you’re paying off. It also allows you to have one single interest rate across the entire amount you owe.
So, what if that interest rate is super high? That’s where refinancing comes in. When you consolidate your loans, you should also have the chance to refinance them (or, you can just refinance an existing loan if you don’t have more than one to consolidate).
Refinancing student loan debt is similar to refinancing any other loan, like a mortgage, in that you get a new interest rate based on your current finances and the current market.
By the time I was two years out of college and refinancing, I had started working full-time and was making my own income. My income was small, but it definitely made a difference in what interest rates were available to me.
My interest rates went from 18%-22% down to a single, capped rate of 4.5% (the rate was locked and it could not increase)!
My total balance went down quicker after that. As you can imagine, paying 20% versus 4.5% on tens of thousands of dollars each month is a big difference.
You are able to refinance more than once, although I didn’t feel the need to do it a second time. If you are interested in trying it again after some time passes, you might be able to get your interest rate reduced even further!
2. Pay more than you owe each month
This is a pretty obvious one, but the larger your payments, the faster your total balance will go down; the lower your total balance, the less interest you’ll be paying each month.
It’s hard to make big monthly payments when making entry-level money, but any extra bit you can throw in each month will help move you forward on the path towards financial independence.
In the beginning, most if not all of your payment amount will go towards reducing the large chunk of interest that has already built up, meaning you aren’t even touching the actual balance yet.
The faster you can make headway on that, the better. So, take a look at your income versus your expenses and come up with a budget.
Figure out where and when you can afford to make slightly higher payments. Your future self will thank you!
3. NEVER skip a monthly payment, even if you have nothing due
As if starting your adult life up to your ears in debt isn’t hard enough, some loan companies actually do sneaky little things that can make the situation worse for the borrower in the long-run.
One of these things is encouraging you to pay less, or to pay nothing at all, on certain months.
Let’s say that $300 is the amount you’re due to pay each month, but you are following tip #2 above and paid $600 last month, in March. It’s likely that your next statement from the loan company will tell you that you owe nothing, and don’t need to make an April payment.
What they won’t tell you is that skipping your April payment does nothing at all to benefit you.
You’re really just delaying yourself from finally reaching that end goal. You aren’t saving any money by skipping payments, you’re just putting them off for a future time, and accumulating more interest in the process.
I distinctly remember being 22 and annoyed that so much of my paycheck went toward loans each month.
When I saw that I had nothing due for a couple of months in a row, I got excited. My strategy of overpaying on previous months had worked, and I could now take a short break and spend some money on myself.
Did I completely destroy my future by making that mistake? No, of course not. Do I still wish I wouldn’t have skipped those extra couple of payments? Yes, absolutely. It might have only saved me a couple hundred dollars, but who wouldn’t want to save a couple hundred dollars??
Besides, maybe I would’ve been writing this post a few months earlier in the year if I hadn’t made those skips. 😋
4. Increase monthly payments as your income increases
As time goes on and you move up in the working world, you should start to make more money.
Of course, the older you get, the more expenses you tend to have, but hopefully it won’t take long for you to get to a place where you have some extra cash left over after covering your bills each month.
When this happens, I strongly encourage you to increase your student loan payment amounts as much as your lifestyle and income allow.
For example, let’s say that a little while into your career you get a raise of $1,200 a year. There’s an extra $100 a month, or even $50 a month, that you can put towards paying off your debt.
It might not seem like much, but it certainly adds up over time. And as you continue to make more money, you can continue to increase those payments and watch your debt start to jump downwards.
5. Use extra funds to make bulk payments
Sometimes in life we are blessed to come into extra money.
Whether it’s a tax return check, birthday gifts, a small inheritance from a relative who’s passed away, or something else, consider using a portion of that new money to make an extra student loan payment.
Making a 13th payment of the year is actually a common strategy for paying down mortgages faster, and works just as low for student loan debt.
Even if your newfound cash isn’t enough for a full additional payment, throw whatever you can in as an additional payment and it will make a difference.
Do this multiple times and it can make a significant difference in how long it takes you to fully pay off your balance.
A last bit of advice…
So, several of my tips above focus on putting as much money as possible into your loans as often as you can.
Of course that makes sense, but you can still pay off your loans quickly and efficiently without putting every free cent you have into them.
Don’t get so carried away with dumping money into your loans that you prevent yourself from being able to enjoy other things in life.
You likely will be paying off student loan debt for all of your 20s, if not longer, so make sure you treat yourself once in a while during that time, too!
A former dance teacher and current friend of mine gave me this advice shortly after I graduated. She was in her 30s and still paying off her own loans, but she also had been living in her own apartment for a while, enjoyed shopping, going on trips, and nights out with friends when she wanted to.
She told me that the loans would get paid off eventually, and that I shouldn’t put other parts of my life on hold waiting for that day. She was careful with her money but also recognized that it was important to reward herself for her hard work.
As with most things in life, it’s all about balance. So, when it comes to paying off student loan debt, be smart about it and do as much as you can, but also allow yourself to indulge and blow off steam every so often.
That’s a wrap!
Are there any other strategies you use when paying off debt or trying to save money? I’d love to hear them in the comments below!
Thanks so much for reading this post and I hope to see you here again soon! ❤️