How to pay off large student loans: 6 strategies

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Nearly 3.5 million people carry more than $100K in student debt, but these 6 strategies can help you pay off large student loans. (Shutterstock)

The average undergraduate student who borrows money to attend college graduates with nearly $28,000 in debt, according to data from the National Center for Education Statistics. But many students have to borrow significantly more: Nearly 3.5 million people owe more than $100,000 in federal student debt.

It can take decades to pay off that volume of debt, but it’s possible to get out of your student loan burden sooner.

Student loan refinancing may help pay off large student loans. By visiting Credible, you can learn more about student loan refinancing and compare rates from multiple private student loan lenders.

Stick with a 10-year repayment plan
Pay interest while you’re still in school
Pay extra
Pursue student loan forgiveness
Consider an income-driven repayment plan
Refinance your student loans

If you’re carrying high student loan balances, these six strategies can help you dig out from under student loan debt.

1. Stick with a 10-year repayment plan

If you take out a federal student loan, you have several options for how you’ll pay it back when you leave school. The default is a 10-year Standard Repayment Plan. Under this plan, you’ll have fixed monthly payments that won’t change for as long as you have the loan. If you keep up with your monthly payments, you’ll pay off your loan within 10 years.

If your goal is to pay off a large student loan quickly, you may want to stick with the Standard Repayment Plan. Income-driven repayment plans have lower monthly payments, but take much longer to pay off. And you’ll pay significantly more in total interest on an IDR plan.

Private student loan lenders also commonly offer 10-year repayment plans. A 10-year plan may strike the right balance between affordable monthly payments and achieving your goal of paying off your student debt quickly.

Why it works: The shorter your loan term, the quicker you’ll pay off your debt and the less interest you’ll pay overall.

2. Pay interest while you’re still in school

If you have private student loans or federal Direct Unsubsidized Loans, you’ll be responsible for interest that accrues while you’re in school — even if you’re not required to pay it right away.

Many student loans come with deferred payments, meaning you don’t have to start repaying your loan until after you leave school. But this interest is added to your loan principal, and you’ll have to pay interest on top of interest when it comes time to pay back your debt — a process known as capitalization.

However, most student loan servicers — including the U.S. Department of Education — offer you the ability to make interest-only payments while you’re in school to keep this from happening. This prevents the interest from building up and adding to the total amount you owe, meaning you’ll be able to pay off your loan quicker once you graduate.

Why it works: If you can find room in your budget to pay off your interest while enrolled in college, you can significantly reduce the amount you’ll ultimately pay.

3. Pay extra

Student loans don’t have prepayment penalties, so there’s nothing stopping you from paying a little bit more than your required monthly payment to help you get out of debt more quickly.

One common way of paying extra is to make biweekly payments, rather than paying your loan once each month. Over the course of the year, you end up making the equivalent of an extra monthly payment. You may also put extra money you receive toward your student loan, such as an inheritance or gift.

Automatic payments can help make this process easier. You can typically choose to set up an automatic payment every other week, or automate a payment larger than your minimum required. Some private lenders even offer interest rate discounts for people who set up automatic payments, giving you an extra incentive.

Just be sure to communicate with your loan servicer before making extra payments to ensure that your additional money is applied to your loan principal. You can also choose to direct extra payments toward your loan with the highest interest rate.

Why it works: Extra payments can quickly whittle down your loan balance, reducing the amount of interest you pay and the length of time you’ll be in debt.

4. Pursue student loan forgiveness

If you have federal student loans, you may be eligible for loan forgiveness programs, depending on where you work. The most common is the Public Service Loan Forgiveness Program, which is open to people who work for government or not-for-profit agencies.

Under PSLF, you can have the remainder of your student loans forgiven after making 120 payments under an income-driven repayment plan while working full-time for a qualifying employer. Only federal Direct Loans can be forgiven.

Another forgiveness program is the Teacher Loan Forgiveness Program, which can shave up to $17,500 off your Direct Loans after working as a teacher for five years.

Why it works: Under income-driven repayment plans, it can take decades to pay off your student loans. Forgiveness wipes them away much sooner than that, if you can qualify.

5. Consider an income-driven repayment plan

When you choose an income-driven repayment plan for your federal loans, your payment is capped at a certain percentage of your monthly disposable income, depending on the specific plan you choose. These plans generally extend the length of time it takes to repay your federal loans, meaning you’ll ultimately pay more in interest.

However, they keep your monthly payments more manageable, and some offer a way to get out of debt more quickly than you would otherwise. For example, if you’re enrolled in the Revised Pay As You Earn Repayment Plan, the balance of your student loans is forgiven after 20 years for undergraduate loans or 25 years for graduate study loans.

Why it works: Income-driven repayment plans can help you keep up with your payments, ensuring you make steady progress on paying off your loans.

6. Refinance your student loans

When you refinance student loans, you take out a new private student loan that pays off and replaces all the student loans you currently have. You’ll generally need to have steady income and good credit to qualify — or find somebody who does to cosign the loan. Your new loan will have a new interest rate, which may be lower than what you’re currently paying. You may also be able to choose a shorter loan term while refinancing.

In some cases, refinancing your student loans can make good financial sense. If you have excellent credit, you may qualify for an interest rate that’s significantly lower than the rates you’re currently paying. This can lower your monthly payment and slash the total amount of interest you’ll pay.

However, be cautious before refinancing federal loans into a private loan. You’ll lose the special repayment plans and other protections that federal loans offer, including forbearance and eligibility for loan forgiveness.

Why it works: Refinancing your loans can lower your interest rate, saving you money each month and over the length of your loan term. If you put that savings toward making extra payments, you’ll get out of debt even faster.

To get started on refinancing your student loans, visit Credible and compare prequalified rates from multiple lenders.