Conquer Your Student Loans
5 steps to avoid a lifetime of debt.
Last updated: April 14, 2022
Whether you’re a recent graduate or facing down your 20th high school reunion (like me), paying off your student loan debt is a big challenge. Making things more complex is the large amount of misinformation and well-intentioned but ultimately poor advice floating around on the interwebs.
This article aims to cut through the noise and help you clarify your best path forward to pay off your student loans.
Two things to note before we dig in.
- We are not discussing any options that include mass student loan forgiveness. I have written about this in a previous article, and it’s a pipe dream. We are going to deal in reality, with the programs currently available.
- The destination for everyone is a student debt of $0. There are myriad ways to get there, from a super-fast payoff to a 25-year forgiveness plan. (I’m assuming death discharge isn’t on your radar!)
Also, I understand that student loan debt can be debilitating, to the point of damaging your mental health. To properly create a payoff plan, you need to get your relationship with money right.
Now that we have our baseline established, let’s begin.
Step 1: Know Where You Are
Alrighty. You know that you need to get your loans down to zero, but you’re not quite sure how. The first place to start is where you are.
- Are rocking the six-figure income, or are you earning minimum wage?
- Do you have six-figure student loan debt, or maybe just the median amount of $17,000?
- Does your credit card debt and its hellacious interest rate rob you of any extra money every month, or have you gone all Dave Ramsey and cut up your cards?
Student Loans
Therefore, I say: know your enemy and know yourself, and in one hundred conflicts you will naturally prevail. — Sun Tzu, The Art of War
The first step is defining the challenge, so start by collecting all your student loan information. This includes the type of loan, current balance, interest rate, current repayment plan. For older borrowers, include the disbursement date, as some repayment plans are only available for more recent loans.
Most of this information can be gleaned from the National Student Loan Data System or NSLDS. For interest rates, you’ll need to go to your student loan servicer website. Put all this information in an Excel sheet for later use.
If you haven’t done this already, keep a table of the usernames and passwords for all of your student loan accounts. It gets really old, really quick if you keep on resetting your login info. Add these to your Excel sheet, too.
The next step is to define where you are financial.
Income and Expenses
Before you get concerned, this is not where I tell you to make a budget and start cutting expenses. This is merely writing down the round numbers to flesh out your current financial state. Choosing what to do with those numbers comes in Part 2.
Also, while some people may be obsessed with balancing their checkbook down to the penny, I do not have that expectation. If you’re unsure, just deal with round numbers. We’ll work on the details later.
Think of income as the gas in your tank and your expenses as your mileage. (This doesn’t exactly work because it is an inverse relationship, but stick with me here.)
Income
The two vital income numbers you need to know are your gross salary and your Adjusted Gross Income (AGI) from your W2. Nerdwallet has a good primer on AGI. If you’re married, add your spouse’s income, too.
Don’t forget to add any income from side hustles, investments, inheritance, etc. It all adds up, and you need a clear picture of your true financial status.
Aside from the purely financial information, there are other things to think about.
For instance, is your job in the non-profit/government sector? If so you may be eligible for PSLF. Also, how steady is your career? Are you just beginning and doing the job-hopping thing, or have you solidly established yourself at a good organization? Along with that, what are your salary increases expected to be?
Expenses
As mentioned earlier, this is not where the guilt trip comes in. You could spend $20 every day on your Starbucks addiction for all I care. All you need to do here is know is what you’re spending each month. It doesn’t need to be exact, just an overall picture.
Now that you know your income and expenses, you can figure out how much money you have leftover each month to put towards your student loans.
For some readers, this number could be negative. If that’s the case, then your student loan payment should be $0. Congratulations!
For others, this could be $1,000 or more. Again, congratulations, because you have more options available even while paying a higher monthly payment.
Step 2: Choose Your Path
Now that you now where you are, you need to see the options available to get to your destination. In short, what are your goals?
A word of warning, you absolutely cannot bullshit yourself during this step. Otherwise, you are going to lead a miserable life. I don’t care what you want to, just don’t lie to yourself and decide upon a goal based on what you think you should do.
Also, this doesn’t necessarily need to be a long-term thing. Maybe you want to travel the world for the first two years after school, then buckle down, get a job, and pay off your loans. Great! You can work the system to do just that. All it takes is a little planning.
Now that we’ve covered the important parts, you need to ask yourself, “What do I want to do with my life?” Cue the Twisted Sister. Do you want to…
- Travel the US…or just Europe…or just the entire world.
- Start a family, or do more with the one you already have.
- Found your own business.
- Dive right in and work for 40 years (totally a great option, especially if you love your job).
Now that you know exactly what you’re going to do with the rest of your life (just kidding!), you need to choose the right repayment plan that helps you do it.
Step 3: Choose your Right Tool for Your Goals
Choosing your destination points you in the right direction, but you still need to find the best road to travel on to get there. This is where the various repayment plans and programs come into play.
There are four basic ways to pay off your student loans.
- Standard 10-year Plan
- Early Payoff
- Income-Driven Repayment Plan Forgiveness
- Public Service Loan Forgiveness
Standard 10-Year Plan
While the roots of this plan started during a time when college was not as expensive relative to the cost of living, this is still a good plan for quite a few people.
The median loan balance is right around $17,000. Over 10 years, the payments are less than most car loans. It might take cutting back a bit around the edges of your spending habits, but if a 10-year repayment plan is a real option, I suggest pursuing it and knocking out your student loans.
Early Payoff
The benefits of an early payoff are split between financial and emotional. Financially, you’ll have more money to invest and live your life after paying off your loans. Emotionally, the anxiety of debt will be completely lifted.
I will add a word of warning, though. Be honest with yourself before pursuing this option. It is a tough road. Depending on your timeline, you might end up sacrificing not just your “fun” things like movies and restaurants, but also your relationships and even your health.
Here is my suggestion. Choose the 10-year plan and pay extra. Make it go to the principal and not just paid ahead. Then, if life gets in the way, you can always go to the lower payment for a month or two.
Income-Drive Repayment Plan Forgiveness
Of the options listed, this is the worst. The long-term capitalization, multi-decade timeline, and tax bomb at the end make for a costly and stressful option.
However, this is a great option as a last resort. If you don’t qualify for any other type of forgiveness and just can’t make the standard payments, then the IDR plans allow for the flexibility to roll with the punches life is handing out right now.
Public Service Loan Forgiveness
The PSLF program is great for two main groups of people.
- Those with a massive debt service (likely doctors, lawyers, dentists, etc.)
- Those whose career lines up with public service, regardless of debt
Regardless of the fear-mongering, you may hear (and the articles I link to further in the article), the PSLF program is not going away. It’s only going to get better. For new borrowers, this is a solid play at getting your student loans taken care of in the same amount of time but at a much lower cost than the standard 10-year program.
For all the benefits, sometimes it doesn’t quite make sense. For example, if you have a job in investment banking, you probably wouldn’t forgo that salary to enter public service.
Double-check the payoff of your theoretically unlimited career income trajectory versus the limited student loan forgiveness available.
Step 4: Take Action
We have thought about what to do and how to get there. Now is the time to stop thinking and take action.
Write It Down
One of the best things to do after deciding on the action to take and performing that action is writing down your goal. Even though research has shown that you are 42% more likely to achieve a goal by writing it down, less than 3 percent of Americans have written goals, and less than 1 percent review and rewrite their goals daily.
Part of your goal setting is to Find Your Why. Find it. Embrace it. And write it down!
- Are you going for an early payoff? Why? Less anxiety? Focus on retirement afterward?
- Are you going for PSLF? Why? Taking advantage of an already public sector job? Career doesn’t pay enough to conquer your loans?
Whatever it is, just write it down.
Do the Work
For every student loan repayment plan, there is work that needs to be done.
All Student Loans
Unless you are in grace, deferment, or forbearance, you should be automatically paying your loans on-time and in-full using the auto-pay feature of your student loan servicer.
Not only does it give you a 0.25% reduction in interest, but also decreases your chances of missing a payment on one of the most important debts you’ll ever have.
Standard 10-year Plan
There’s not much student loan action to take here. Just keep your job and let the automatic payments do their thing.
The best action to take is for other areas in your life. Save for retirement. Take a vacation. Pay off other debt. Live your life.
Early Payoff
The action here is mostly mental. To pay off your student loans early, you have to be committed. Not just the, “Yeah, sure, it would be nice.” type of commitment, but the “This is going to happen come hell or high water!” commitment.
People might laugh at your frugality and not understand your focus. If you need to change your social group to succeed, do it. Just remember, some might call you obsessed; you merely call yourself dedicated.
Income-Driven Repayment Plans
Regardless of your ultimate payoff goal, if you are on an IDR plan, you need to recertify frequently. The minimum is annually.
Don’t forget to recertify if life hands you a curveball. This could be expected, like a new baby. Or it could unexpected, like a new baby.
- Lost your job? Recertify.
- Get married. Recertify.
- Mom moving in after your dad died? Recertify.
You get the idea.
The other thing to focus on with IDR plans is to reduce your AGI as much as possible. There are myriad ways to reduce your AGI, so keep an eye on your expenses come tax time. Examples include:
- Medical FSA/HSA contributions
- The dependent care FSA contribution
- Tax-deferred retirement accounts
- Medical expenses
- Mortgage interest
- Student loan interest
Lastly, if your student loan payoff goal is the 20 or 25-year IDR forgiveness, don’t forget to save for the “tax bomb” at the end. Everything that is forgiven even capitalized interest, is considered income by the IRS. As such, you need to pay taxes on it. This can boost your salary for the year by $100,000 or more, so start saving now, even if it’s just a little bit.
Public Service Loan Forgiveness
In addition to everything in the IDR section above, PSLF requires even more action. This stems from the complete and utter lack of competence at FedLoan Servicing.
After you first submit your Employment Certification Form, make sure they have counted your qualified payments accurately. Then, submit your ECF annually. A rule of thumb is to submit a new ECF every time you recertify your IDR.
Then, once you’re on the program, there’s a little secret to PSLF success. TRACK EVERYTHING!
Seriously. FedLoan will miscalculate your loan payment, miscount your total payments, and misrepresent the PSLF program. Then blame you for not understanding.
Keep every form, document, and e-mail sent and received regarding your PSLF. Don’t just rely on your bank or FedLoan’s system for keeping it online. Download the pdf and save it to a local folder on your computer. Then save it to a cloud service for backup.
This may sound extreme, but it will help you in the long run. Just ask the 99% rejected by PSLF. Or the other 99% rejected by TEPSLF.
Step 5: Review Your Options
The last step in this process is…do the whole process all over again.
No kidding, you need to stay on top of your game when paying off your student loans. For too many people, this is too much money to just look at once and hope everything goes well.
If you’re already reviewing your life goals annually, then just add a student loan review to the mix. If not, then put a reminder on your calendar every 12 months just to take a look at your situation. If you’re on one of the IDR plans, you’ll get an annual recertification reminder anyways, so make it coincide with that.
Life happens, both good and bad.
You may have tripled your salary in a year and can now pay off your loans early. Great! Adjust your plan accordingly.
OR
You may have gone to graduate school after a recession and doubled your loan balance. Great! Update your plan accordingly.
The bottom line is that you need to be active in your student loan repayment.
Stay committed to your decisions but stay flexible in your approach. — Tony Robbins
Educate yourself. Read up at studentaid.ed.gov. Ask questions or just lurk on Reddit at r/student loans. Study Medium articles. Just never stop acting until your student loan balance is at zero.
Best of luck!
