Many college students end up needing at least some loans. But the long-term burden of debt can be overwhelming, with the average Class of 2021 graduate leaving school with more than $29,000 in federal and private student loan obligations.
Few students manage to pay off these loans within the standard 10 years. And the longer it takes to pay off that debt, the longer you might need to postpone other life goals, such as buying a house.
Here’s a five-step plan for how to pay off $30K in student loans within three years:
- 1. Commit to student loan payoff
- 2. Consider refinancing your student loans
- 3. Choose your strategy
- 4. Plan out your repayment
- 5. Pay extra when you can
Plus: How to pay off student loans over a longer timeline
1. Commit to student loan payoff
If you want to pay off student loan debt quickly, then you — and really, everyone in your household — must commit to the process. While some people can pay off their loans without making significant lifestyle changes, most need to set an overriding goal to achieve positive results.
The first step should be prioritizing your student loan debt and planning to wipe it clean within three years (or your own specified time frame). Unless you are 100% on board with this plan, it will be hard to keep going when the going gets tough.
2. Consider refinancing your student loans
The next thing you want to do is reduce your student loan interest rate. That way, more of your payment can go toward the principal rather than interest charges.
If you have good credit, you could qualify for a lower interest rate by refinancing your student loans. When you refinance, a private lender pays off some or all of your current student loans and issues a new loan. This new loan will have different repayment terms than your old loans, including interest rate, minimum monthly payment and length of repayment.
Although you can refinance both federal and private loans, there are some downsides to refinancing federal loans. For instance, you’ll lose out on government protections and benefits, such as access to income-driven repayment plans.
However, for those seeking to pay off their private student debt as quickly as possible, refinancing might be able to help if you can nail down a lower interest rate.
3. Choose your strategy
Now that you’ve done all you can to reduce the interest rates on your loans, it’s time to think about how you want to approach repayment.
One way is the debt avalanche method, which first tackles the debt with the highest interest rate. To get started, list all your loans and their interest rates. Continue making the minimum payments on all of them, but put any extra money toward the loan with the highest rate.
Example
Let’s say you have the following loans:
- $10,000 federal student loan at 4.99% interest
- $5,000 private student loan at 9% interest
At 9.00% interest, the private student loan is your most expensive debt, so it makes mathematical sense to pay that one off more aggressively. Paying it off ahead of schedule will help save money in the long run.
However, if your finances are limited, you might try the debt snowball method instead, which builds momentum by paying off your smaller balances first. While you might not save as much on interest compared to the avalanche method, it can be great in terms of giving you some quick wins as you retire the small loans.
And these are just two ways to tackle repayment. For more ideas, have a look at our guide to get out of debt.
4. Plan out your repayment
While picking a strategy and possibly lowering your interest rate are big steps forward, you might want to do some extra planning if you’re going to retire your debts in just three years.
Specifically, you should map out exactly how much you’ll need each month in order to stick to your timeline.
Let’s assume you owe $30,000, and your blended average interest rate is 6%. If you pay $333 a month, you’ll be done in 10 years. But you can do better than that.
According to our student loan calculator, you’d need to pay $913 per month to put those loans out of your life in three years. Doing the math is easy, but coming up with that extra cash is tough. That’s where our next step comes in.
5. Pay extra when you can
You can earn money for debt repayment by spending less, earning more or doing a bit of each. While this step is more challenging than the previous four, it’s not impossible.
Go through your bank and credit card statements for the last three months. Circle each item you can live without for the next three years. If it’s an ongoing expense you don’t need, such as an entertainment subscription, cancel it immediately. Make more adjustments if you see a pattern of unnecessary spending, like dining out or expensive vacations.
If you’ve already trimmed your budget to the bone, think about ways to earn more money. One potential answer is to launch a side hustle, where you can make extra cash on your schedule.
How to pay off student loans over a longer timeline
If you want to keep up with your student loan debt but feel like the three-year timeframe is too tight, here are other payment options to consider.
Apply for an income-driven repayment plan
An income-driven repayment (IDR) plan adjusts your monthly payment based on your income and family size. The Department of Education currently offers four IDR plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
An IDR plan’s benefits include an affordable monthly payment based on your income and an extended repayment term — up to 20 or 25 years. However, you may end up paying more interest over the life of the loan, depending on how much you need to pay monthly.
If you want to see more progress on an IDR plan, consider making extra principal-only payments when you can afford it.
Pursue student loan forgiveness
Depending on your career path, you might qualify for student loan forgiveness. Here are some popular programs to consider:
- Public Service Loan Forgiveness (PSLF)
- Teacher loan forgiveness
- Military loan forgiveness
While student loan forgiveness can erase some or all of your student loan debt, the criteria can sometimes be pretty strict. Research the rules or discuss eligibility with your loan servicer before moving forward.
Find an employer offering student loan repayment assistance
It’s worth looking for a company that helps employees pay off their student loans. For example, Aetna will match some student loan payments for eligible employees who meet specific criteria.
Ask your HR department if they offer such a perk. If not, there’s no harm in asking them to start such a benefit.
Above all else, stay focused. Celebrate your progress even if you don’t think you’ll be debt-free within three years. You’ll be amazed at how good it feels to see those balances melt away. Once you get a little success under your belt, finding additional ways to apply more money toward your debt will be easier.
