Student Loan Repayment Strategies: Finding Your Best Path

Student loans are often the largest debt young adults carry. The good news? You have more repayment options than you might realize. The key is choosing the right strategy for your situation.

Federal vs. Private Loans: Know What You Have

First, figure out what types of loans you have:

Federal Loans

• Direct Subsidized/Unsubsidized
• Direct PLUS Loans
• Perkins Loans (discontinued but still exist)
• FFEL Loans (older loans)

Private Loans

• From banks, credit unions, or online lenders
• Fewer repayment options
• No forgiveness programs

Federal Loan Repayment Plans

Standard Repayment

• Fixed payments over 10 years
• Highest monthly payment
• Lowest total interest paid
• Best if you can afford it

Graduated Repayment

• Payments start low, increase every 2 years
• Still 10-year term
• Pay more total interest
• Good if income will grow

Extended Repayment

• Stretch payments to 25 years
• Lower monthly payments
• Much more interest over time
• Requires $30,000+ in loans

Income-Driven Repayment (IDR)

• Payments based on income and family size
• 20-25 year terms
• Remaining balance forgiven (may be taxable)
• Multiple plan options (IBR, PAYE, REPAYE/SAVE, ICR)

Choosing Your Strategy

Pay Off Aggressively If:

• You have stable, sufficient income
• You want to be debt-free quickly
• You're not pursuing forgiveness
• Your interest rates are high (6%+)
• You have an emergency fund already

Use Income-Driven Plans If:

• Income is low relative to debt
• You work in public service (PSLF eligible)
• You need payment flexibility
• You're pursuing loan forgiveness
• You prioritize cash flow for other goals

Refinance If:

• You have private loans with high rates
• You have strong credit and income
• You don't need federal protections
• You're not pursuing forgiveness

The Math: Aggressive vs. Minimum Payments

Example: $35,000 at 6% interest

Paying just $200 extra per month saves almost $5,000 in interest and 4 years of payments.

Strategies for Paying Off Faster

1. Make Extra Payments

Any extra payment goes directly to principal, reducing total interest.

2. Bi-Weekly Payments

Pay half your payment every two weeks instead of monthly:

• 26 half-payments = 13 full payments per year
• One extra payment annually, automatically

3. Round Up Payments

If payment is $287, pay $300. Small amounts add up over time.

4. Apply Windfalls

Tax refunds, bonuses, gifts—put unexpected money toward loans.

5. Side Hustle Income

Dedicate side income specifically to loan payments.

Dealing with Multiple Loans

If you have multiple loans, you have options:

Avalanche Method

Pay minimums on all, extra toward highest interest rate.

• Mathematically optimal
• Saves the most money

Snowball Method

Pay minimums on all, extra toward smallest balance.

• Psychological wins
• Faster sense of progress

Target One Servicer

If loans are spread across servicers, focus on eliminating one servicer entirely for simplicity.

When Refinancing Makes Sense

Good candidates for refinancing:

• Private loans at high rates
• Federal loans if you don't need federal benefits
• Strong credit score (720+)
• Stable, sufficient income
• Not pursuing PSLF or forgiveness

Where to refinance:

• SoFi, Earnest, Laurel Road
• Credit unions
• Banks

What to look for:

• Lower interest rate
• No origination fees
• Flexible repayment terms
• Unemployment protection (some offer this)

Handling Financial Hardship

If you can't make payments, don't ignore your loans:

Deferment

• Temporary pause on payments
• Interest may not accrue (subsidized loans)
• Must qualify (unemployment, school, economic hardship)

Forbearance

• Temporary pause or reduction
• Interest continues accruing
• Easier to qualify

Income-Driven Plans

• Payments as low as $0 if income is low enough
• Still counts toward forgiveness timeline

Tax Benefits

Student Loan Interest Deduction

• Deduct up to $2,500 in interest annually
• Income limits apply ($85,000 single, $175,000 married in 2024)
• Available even if you don't itemize

Employer Student Loan Assistance

• Employers can contribute up to $5,250/year tax-free
• Ask if your employer offers this benefit

Common Mistakes to Avoid

Creating Your Student Loan Plan

Your action steps:

1. Inventory all loans (federal and private)
2. Determine if you qualify for any forgiveness programs
3. Calculate payments under different repayment plans
4. Choose your strategy (aggressive payoff, IDR, refinance)
5. Automate your payments
6. Review annually and adjust as income changes