How To Create A Plan To Pay Off Your Student Loans

Are you eager to get your student loans off your back? 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:

How much do you owe?

Before you can create a plan to pay off student loan debt, you need to assess how much student loan debt you have and the type of student loans (federal vs. private). You also need to determine the terms of your loan(s), including 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 current payoff plan. 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 can 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 repayment estimator 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 this 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 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 because you will need to maintain the federal loan in the proper repayment plan 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.

Ask your employer if they have any programs to help with student loans. 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.

Identify ways to free up extra money to fast track your debt payoff. 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 and 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 can help you see how extra payments can fast track the loan payoff process.

Action Step 5: Begin to pay the minimum on all loans with the exception of the highest interest rate student loan (you can pay more than the minimum on this loan).

Student loan payments do not have to be a constant burden. Whether you are 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 debt repayment plan fits into your total financial plan and meets your short and long-term objectives.

By Cyrus Purnell, Contributor