How To Pay Off Student Loans

Molly Carapiet, Director of Eagle Lending Operations, First Republic Bank
June 20, 2018

It’s no secret that many Americans are challenged to pay off their student loan debt. Roughly 44.2 million Americans have a combined total of more than $1.5 trillion in student loan debt. Grads with this type of debt may find it difficult to focus on other future financial goals, like buying a first home, traveling, starting a family or even getting married. You can save thousands of dollars in the long run by paying off your student loans fast — and start working toward other saving and investing goals.

Although your student loan debt may seem intimidating, there are more ways than ever to help pay down those loans faster. The following is your comprehensive guide to the best ways to pay off student loans, so you can get out of debt and take back your financial freedom.

7 steps to pay off student loans

  1. Assess your current financial health. You can’t begin to pay down your student loan debt responsibly until you get a full view of your entire financial picture. To do this, figure out your total annual income (after taxes), your total debt and other financial obligations, and your credit score. The stronger you are financially, the better position you’ll be in to secure the best interest rate if refinancing is in your future.

Bonus tip: If you have debts with higher interest rates than your student loans (like credit cards, for example), it might make sense to work on paying those off completely first, before putting any of the following plans into place to pay down student loan debt.

  1. Try consolidating and refinancing. What’s the difference between consolidating and refinancing student loans? Consolidating combines all your student loans from different lenders under one financial roof so you can keep better track of them. Refinancing is paying off all of your existing student loans into a completely new loan, potentially with a lower interest rate or a different loan term. Often refinancing results in reduced monthly payments and helping you pay your loans down faster.

Many graduates who are able to refinance their student loans have found that it’s a great way to accomplish other financial goals while still paying off their student loan debt. For example, once she got her first job, Theresa Nguyen knew she wanted to make buying a home a priority, so she reached out to First Republic for help. After refinancing her student loans she was able to save more to put toward her down payment while her personal banker helped her secure a great loan for her new home.

Bonus tip: Keep in mind that these new loans may require you to give up special features of federal student loans like loan forgiveness and income-based repayments.

  1. Make higher monthly payments. You might think finding extra money each month to pay more toward your debt is impossible, but here are some smart ways to make it happen:

    • Go over your monthly expenses line by line to cut back on (or cut out) wasteful spending, such as paying for cable or a gym membership you never use. You should also take a full inventory of leisure expenses — like coffee, eating out at restaurants, etc. — and prioritize your spending to achieve your goals.
    • Make a plan to accelerate your career growth and increase your monthly income so you can put the difference toward your student loan debt every month.
    • Take on a second job or side gig and put that money directly towards your debt.
    • Put extra cash like bonuses or gifts toward your student loans.

Bonus tip: Change your student loan payment plan to make half of the required payment every two weeks instead of a full one monthly. Since there are 52 weeks in a year, you’ll end up making 13 full payments (made up of 26 biweekly half payments) instead of 12.

  1. See if your job offers forgiveness options. You can’t always plan your career around jobs that will help you pay your student loans more quickly, but keep in mind that certain fields offer loan forgiveness programs that could significantly decrease your loan balance and how much you end up paying in the long term. If you happen to work in one of these fields — like public work or teaching, for example — check with your company to see if you qualify for full or partial student loan forgiveness.

Bonus tip: Many job listing sites allow you to search for jobs that offer loan forgiveness as part of their incentive packages. For example, on indeed.com, simply type “loan forgiveness” in the What box and add your location for a list of companies that offer loan forgiveness perks in your area.

  1. Get your job to pay for your debt. Some employers are now offering student loan repayment as a benefit. These types of programs are gaining in popularity. For example, First Republic’s Gradifi program is a seamless, scalable student loan repayment benefit that more and more employers are offering as a way to attract, retain and engage talented professionals.

Bonus tip: These kinds of payments are meant to help you pay your loan off faster, not reduce your contribution. Always pay at least your minimum and let your company’s payment be extra.

  1. Sign up for automatic payments. You’ll need to check with your loan provider for specifics, but many providers offer discounted interest rates for automatic payment enrollment. You can even set up the payment date every month based on when it’s convenient for you. This can save you money every month and prevent you from missing payments (which can cause fees and negatively impact your credit score).

Bonus tip: Most providers send you a notification before they deduct the payment from your bank account, so you can be sure you have the funds to cover it.

  1. Start making payments while you’re still in school. Most students don’t even think about making payments on their student loans until after they graduate. However, paying down student loans as soon as possible could help you save significantly in the long run — even small payments can add up. If you have the means to make payments on your federal loans while in school, it’s best to tackle unsubsidized loans first. These loans begin accruing interest as soon as funds are disbursed, so making early payments could help you pay less interest over the life of the loan. Subsidized loans, on the other hand, don’t actually accrue any interest while you’re in school. For private loans, direct any prepayments to the loans with the highest interest rates — especially if they are variable — to save the most money.

If you plan to make early loan payments, work with your loan provider to make sure the payments are being applied as you want them to. Also, double check that your payments are going towards the principle of your loan, not just the interest. This is the best way to decrease the amount of interest you’ll owe over the course of your loan.

Remember: It’s a marathon, not a sprint

If you’re currently paying off student loans, it might be hard to envision a life without them. The best thing to do is to focus on the future and everything you can do once you’re free of your student loan debt. The methods above can help you eliminate those loans more quickly, so you can get on with reaching your other goals in life.

If you’re still unsure what the right move is for you, consider speaking with a financial advisor who can provide you with advice on how to pay down your student loans faster and prepare for the future.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. First Republic does not provide tax or legal advice.