How to pay off $30,000 in student debt
Our goal at Credible Operations, Inc., NMLS Number 1681276, hereafter referred to as “Credible”, is to give you the tools and confidence you need to improve your finances. Although we promote the products of our partner lenders who pay us for our services, all opinions are our own.
The average amount of student debt is around $30,000, according to US news data. Graduating from school and starting a professional career with so much debt can be a big hurdle, especially when it can take 10 years on the standard repayment plan for federal student loans.
Consolidation, deferment, forbearance, income-oriented repayment plans, and refinancing can help make monthly payments manageable, but they can also extend the time it takes to pay off your student loan debt. Here are some strategies that could help you pay off $30,000 in student loans and get out of debt faster.
You can read more about student loan refinancing and see prequalified rates from multiple lenders with Credible.
1. Make extra payments when possible
If your budget allows, you might consider making an extra payment on your loans where possible. Here’s why:
Let’s say you owe $30,000 in student loans at an interest rate of 4% and a monthly payment of $304. If you only made the minimum payment each month, it would take you 10 years to pay off your loans. You’ll also pay nearly $6,500 in interest alone.
But if you make an extra payment of $304 each month, it would now take four years and seven months to pay off your $30,000 loan and you would pay just over $2,800 in interest. If you can’t make a full additional payment, but can increase your minimum payment by $100 per month, you’ll pay off your loan in about seven years and pay just over $4,500 in interest. Either way, you come out ahead.
Before deciding to make an additional payment, ask your lender if your additional payment will go toward interest or principal. Most loan officers apply an additional payment to the interest first, then to the principal balance. If you prefer to have your additional payment go to the principal balance first (which is preferable), visit your loan officer’s website and indicate your preference.
While in school, you can also consider making partial payments or interest-only payments, which can significantly reduce the total you owe when you graduate. A student loan repayment calculator can help you better understand how additional payments may affect your total.
2. Consider refinancing your student loans
Another way to help save money over the life of your loans is to student loan refinance by a private lender — bank, credit union or other financial institution. Refinancing can potentially give you a longer repayment term and a lower interest rate, and you can combine multiple loans into one monthly payment instead of multiple ones.
But if you refinance your federal student loans with private loans, you lose the benefits of federal loans, such as income-contingent repayment (IDR) plans. You also may not qualify for student loan forgiveness, federal deferment, or forbearance programs. And you’ll likely need good to excellent credit to get the best interest rates and terms when refinancing with a private lender, unless you’re using a co-signer.
Credible, it’s easy to compare student loan refinance rates in minutes — without affecting your credit.
3. Try Debt Avalanche or Debt Snowball Strategies
There is more than one way to pay off debt. The Debt Avalanche Method can help pay off and pay off multiple student loans faster, which means you’ll pay significantly less interest over the life of your loans. With this strategy, you will pay extra for the loan with the highest interest rate. Once you pay off that loan, you put all of your extra funds into paying off the loan with the second-highest interest rate, and so on – hence the avalanche.
If watching your student loan balance disappear makes you smile, you might want to take a look at the debt snowball method.. With this strategy, you invest in paying off your smaller loan balances first. You may pay more interest over time than with the avalanche method, but the psychological boost you’ll get from watching your loans disappear may be worth the cost.
4. Skip Grace Periods and Deferrals
Grace periods, deferment, and forbearance are all intended to make it easier for you to repay your student loans by allowing you to wait until you can better afford to repay your student loans. But the downside is that interest may continue to accrue while you wait to start payments.
Due to the financial challenges, job loss, and economic hardship caused by COVID-19, the federal government has enacted the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES. The act suspended most federal student loan payments, waived interest, and halted all collections on delinquent loans for a specified term. Currently, payments and interest are expected to resume on May 1, 2022.
It is important to understand that any payment you skip will be added to your loan balance, which you will eventually have to repay.
In addition, your loan servicer may decide to recalculate your monthly payments after deferral if your loan has a traditional debt repayment plan, including a standard, graduated or extended plan. This can increase your monthly payment. That’s why it may be best to continue paying your student loan balance during the deferment if your budget allows.
5. See if you qualify for loan forgiveness
loan forgiveness is only available for federal student loans, not private loans. But not all federal student loan borrowers will qualify. This is because most programs have very specific eligibility requirements for borrowers of Direct Loans, Federal Perkins Loans, and FFEL Program Loans. The application process can take several months, and even then there is no guarantee that you will be approved. But if you qualify for cancellation, forbearance or release of your loans, you are no longer responsible for repaying your loan. If you are approved to cancel only part of your loan, you must still repay the remaining balance.
Two of the most popular programs include:
Cancellation of civil service loans
Civil Service Loan Forgiveness is available to students receiving direct federal loans from the U.S. Department of Education. If you are employed by a nonprofit organization or by a federal, state, local, or tribal government agency, you may qualify for loan forgiveness through the Public Service Loan Forgiveness Program (PSLF).
PSLF cancels the remaining balance on your direct loans after you make 120 qualifying monthly payments under a qualifying repayment plan, while working full-time in a qualifying job for a qualifying employer.
Teacher loan forgiveness
Educators with Subsidized Direct Loans, Unsubsidized Direct Loans, Subsidized Federal Stafford Loans, or Unsubsidized Federal Stafford Loans may be eligible for teacher loan forgiveness of up to $17,500. But you must meet the eligibility criteria, including teaching full-time for five consecutive, full years at an elementary or secondary school or low-income educational services agency.
Keep in mind that you cannot receive a discount for the same period of service or eligible payments for the Civil Service Loan Forgiveness and the Teacher Loan Forgiveness. However, the limited PSLF waiver may temporarily waive this restriction if you have previously received teacher loan forgiveness.
How long does it take to repay student loans?
Current student loan debt in the United States is approximately $1.75 trillion and continues to rise. To put that into perspective, that’s about $440 billion more than the total auto loan debt in the United States. While $30,000 isn’t even close to those numbers, it’s a huge amount when you’re just starting out in your career and on a tight budget.
But by taking every penny out of your paycheck, getting a hustle or a new roommate, and skimping on an extravagant lifestyle, you could see your total debt disappear faster. The speed depends on several factors, such as employment status and your approach to the repayment process.
Federal student loan repayment plans can range from 10 to 30 years. Private student lenders generally offer shorter terms of five to 15 years, with some lenders offering terms of 20 to 25 years. You will generally pay less interest if you pay off your loans sooner. If you refinance but extend the payment term, you will pay more interest over the life of the loan.
What to know about income-contingent repayment plans
If your student loans represent a significant portion of your annual income or if you have an IDR plan but need to change your plan or recertify, you may be eligible for a income-based repayment plan.
You can choose from four types of plans:
- Income Based Reimbursement Plan (IBR)
- Pay As You Earn (PAYE) Reimbursement Plan
- Income Contingent Repayment (ICR) Plan
- Revised Pay As You Earn (REPAYE) Repayment Plan
If you have Parent PLUS loans or your student loans are in default, you cannot request lower monthly payments through any of the IDR plans. These plans may make it easier to manage your monthly payments, but they won’t help you pay off your debt faster.
Refinancing private student loans could help you get a lower interest rate and monthly payment. With Credible, you can easily compare prequalified rates with several student loan refinance lenders.