Updated October 29, 2018

How to Get Rid of Student Loans


You can get rid of student loans faster with forgiveness programs, refinancing, and smart savings. Read on for the different options.

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The day finally came - you graduated college! Now it's onto real life. Unfortunately, student loans make it hard to enjoy life for many graduates.

The good news is you have options.

You may be eligible for loan forgiveness. There are also income-driven repayment plans and refinancing options. There are even sneaky ways you can speed up how fast you pay your debt off.

Read on for smart, legal ways to get rid of your student loans.

Find a Repayment Plan that Works for You

Got Federal loans? You're automatically assigned to the Standard Repayment Plan, which evenly divides payments over 10 years. Taking the average student debt of $37,000 and average 5% interest, this means paying $392 per month for 10 years.

If you can't afford that, there are other plans you can enter.

  • Graduated Repayment Plan. This is still a 10-year plan, but the payments start out low and get bigger. Your payment will increase by 20% every two years. The max payment will never be more than 3x your original payment. This is a great option if you know your income will increase over the next decade.

  • Extended Repayment. Under this plan, your term could be extended up to 25 years. This makes your monthly payments lower. However, you pay a lot more in interest over time.

These plans don't exactly help you cancel loans. But they make loans more manageable so that they can pay them off. Read on for repayment plans that offer forgiveness.

Note: Keep track of all documents from your federal student loan servicer. Your servicer helps you manage your federal loans. You will remain with this servicer until: you pay off your loans, you default on your federal loans, or you get transferred to another loan company (this is not common, but does occur).

Income-Driven Repayment Plans with Forgiveness

You can also enter one of the 4 income-driven repayment options. With these plans, your monthly payment is based on your income. If you earn very little, your payments could even be $0. After 20 - 25 years of payments, the rest of the balance will be forgiven.

The plans are:

  • Income Based Repayment (IBR). Your payment is 10% of your discretionary income, (for loans taken out after July 1, 2014). Your outstanding balance is forgiven after 20 years of payments.

  • Pay As You Earn (PAYE). You qualify if you have loans originated after October 1, 2007, and with a disbursement after October 1, 2011. Your payment is 10% of your discretionary income. Your outstanding balance is forgiven after 20 years of payments.

  • Revised Pay As You Earn (REPAYE). You pay 10% of your discretionary income. Your outstanding balance is forgiven after 20 years of payments. But there aren't any payment caps, so your payment could be very high if you earn more.

  • Income Contingent Repayment (ICR). You pay either 20% of your discretionary income or a 12-year fixed payment, whichever is less.

Keep in mind these are for federal student loans. Private loans are not eligible for a federal repayment plan.

Learn more about these programs in detail, with our article "How to Get Student Loans Forgiven."

Tip: Setting up automatic payments from your checking or savings account may reduce your interest rates on your federal loans by .25% which can add up in the long run.

Consolidate Federal Loans

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Student loan consolidation and refinancing are often confused. Loan consolidation applies to federal student loans only. With consolidation, you combine several federal loans into one loan. Your new interest rate is the weighted average of all loans you consolidate.

There are several benefits of loan consolidation.

  • Easier debt management with one payment
  • Extended term to make your payments more affordable
  • Possible lower interest rate than some loans with higher rates

If the monthly payments are too high, you can ask for an extended term. Keep in mind, this means more interest over the life of the loan. Even if you have a lower rate, you pay the interest for a longer period.

If you have federal student loans, you should check with your loan servicer first. There may be other benefits you can use rather than consolidating. For instance, you may be eligible for a loan forgiveness plan. Your loan servicer can tell you how to proceed.

But, if you have a Federal Stafford Loan or Perkins Loan, you may need to consolidate them first. Again, check with your loan servicer before proceeding.

Refinance

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Student loan refinancing is done through a private lender. They will combine your loans and give you an interest rate based on your creditworthiness. This will create one monthly payment.

If you can get a better interest rate, that could save thousands over the life of the loan. For example, SoFi claims that the average member saves $15,767 through refinancing.

Consider refinancing if:

  • Your credit has improved since graduation. You can get a better interest rate.
  • You are not eligible for any forgiveness programs. Once you refinance a federal loan, you will no longer be eligible.
  • You are confident that you can make the monthly payments.

Credible helps you compare multiple rates to find the lowest one for you. CreditDonkey readers get up to a $1000 bonus when they refinance through Credible with a balance over $100,000, or a $200 bonus with a balance below $100,000 with this link.

See our favorite student loan refinance providers.

Before you refinance, look at the options. What will your payments be each month? Are they offering a fixed rate or adjustable rate? Make sure you fully understand the interest rate, term, and agreements. Also note if the lender has a forbearance period if you lose your job.

Forbearances can be used for multiple different reasons such as financial difficulties, medical reasons, and a change in employment. But keep in mind that interest continues to accrue during a forbearance. Find the Forbearance request here.

Look for Forgiveness

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There are many places to look for forgiveness of your federal loans. You may find it at a federal, state, or local level. Most programs will require you to work in a specific industry for a certain length of time. Forgiven loans mean that you will no longer owe the principal or accrued interest.

Here are some examples of loan forgiveness options. Click on the links to read our detailed guides.

  • Do you work in public service? If you work for a government agency or non-profit, look into the Public Service Loan Forgiveness (PSLF) program. You must enroll in one of the income-driven repayment plans. After 10 years of qualified payments, your loan balance may be forgiven.

  • Are you a teacher? Teachers have special programs available only to them. You must work for a low-income school, though. You can find out if your school qualifies here. If you qualify, you may receive between $5,000 and $17,000 in loans forgiven. If you have Federal Perkins loans, you may even get 100% of them forgiven after 5 years of teaching.

  • Are you a nurse? There are many forgiveness programs for nurses. Check out our complete list of the programs for nurses. Most of them require at least 2-year service in a high-need area.

  • Are you a doctor? Here are the forgiveness programs for doctors available to you.

  • Are you a childcare provider? The Child Care Provider Loan Forgiveness Program offers forgiveness to childcare providers in low-income communities. After 2 consecutive years of work, you may have 20% of your loans forgiven. After the 3rd consecutive year, another 20% may be forgiven. During the fourth and fifth year, 30% may be forgiven.

  • Are you in the military? As a thank you for serving our country, the government provides many repayment, cancellation, and deferment options.

Graduates need to have some real conversations with themselves and have a realistic look at income coming in and expenses going out, and figure out what sacrifices can be made to get that debt down as much as possible. When looking at refinancing, be sure to choose a lender that is trustworthy, shop around for interest rates, and make sure all criteria is met.

We work with a number of folks who thought they should have received student loan forgiveness but didn't.

We suggest if you want to go down that path that you triple-check the types of loans you have, be sure to meet all eligibility requirements, see if your employer participates, and to really look at what the future would look like without loan forgiveness—and compare refinancing now to that.

Heather B. Price, Director of Marketing, SouthEast Bank

Check Your State's Forgiveness Plans

On top of the federally funded forgiveness plans, there are state plans. These plans vary by where you live. Most of the plans offered are for nurses, doctors, lawyers, teachers, and veterinarians. These programs often require you to work in an underserved area. But you can also find programs for other professions.

For example, New York offers repayment for social workers through the NYS Licensed Social Worker Loan Forgiveness Program. This program offers up to $26,000 in loan forgiveness.

A few requirements for the program include:

  • You must live in NY for a year
  • You must be a licensed social worker
  • You must not be in default on your student debt

Here's another example. Texas offers the Loan Repayment Program for Speech-Language Pathologists and Audiologists. This program encourages students to work in speech-language pathology. The requirements and amount offered differ.

It's worth checking out what your state has to offer. You never know when there is free money available.

Ask About Employer Reimbursement

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Some employers may provide student loan reimbursement. While this is a fairly new concept, it is becoming more popular. Ask your HR department if your employer offers this benefit.

For example, employees at Fidelity may receive up to $2,000 per year towards their student debt. They may be eligible to receive a total of $10,000 throughout their career. This might not eliminate your debt, but it's $10,000 less that you must pay!

Penguin Random House offers reimbursement for full-time employees. They offer up to $1,200 per year with a maximum of $9,000 total. Employees must work for the company for at least one year to qualify.

Tip: A deferment from the federal government might be a good option for you if you lost your job. Other uses for a deferment are returning to school or undue financial hardship. Find the Deferment request here.

Think Outside the Box

Once you exhaust all your federal, state, and local options, it's time to think outside the box. Your regular earnings may not make a dent in your student debt, but there are other ways. Consider any windfalls you come into:

  • Tax returns
  • Commissions
  • Sign-on bonuses
  • Annual bonuses

This is money you didn't have before. Hopefully you don't need it for daily living. Rather than spending it on shopping, put it towards your loans. Even if you only receive $1,000, it adds up. As soon as you knock your student loan down by $1,000, you owe less interest. Already you're ahead of the game. Continually do this and you will get rid of those loans before you know it.

Josh Hastings writes about he and his wife are rapidly cutting down their student loan debt through the blog Money Life Wax. The couple is prioritizing becoming debt-free (including their mortgage) as soon as they possibly can to achieve their goal of freedom. They are not as interested in setting up a retirement nest egg as living the life to the fullest before that time. To put as much as they can toward their student debt they:

  • Rent out a room in their house
  • Use their tax return toward their debt
  • Bought non-luxury cars and paid off the loans
  • Opted for a small, affordable wedding
  • Put off having kids
  • Limit their dining out and going out excursions
  • Paid off $40,000 worth of student debt using a home equity line of credit (Hastings acknowledges this is a controversial move but he believes it works for them. It enabled them to get more ahead of their student debt, whose interest kept accumulating at a quick pace.)

Another idea is to ask your family to put money towards your student loans instead of buying your birthday and holiday gifts. LoanGifting allows donors to apply money to your student loan balance.

What if I go bankrupt? You may be able to get your federal loans discharged based on bankruptcy depending on your financial situation. If paying your federal student loans will cause undue financial distress you may be eligible. The Department of Education can help you understand these options.

Save Money

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And lastly, a tried-and-true way to pay off student loans is to save money. Start by setting a budget. Let's say you budget $150 for groceries, but you only spend $100. Take that $50 and put it towards your student loan. If you do this each month with any extra money you have, you can make an extra payment or two on your loans. Again, you knock the principal down, which means less interest. The more you do this, the easier it is to knock your loans down.

Break down your spending habits from the past few months: After paying for the necessities, where does the rest of your money go?

An easy starting point when creating a budget is to look at your average past expenditures -- and then slash that number by 30% or more. It sounds harsh, but the difference may come down to simple changes like to a few extra homemade dinners instead of restaurants, not splurging on overpriced popcorn at movie theaters, and so on. You probably will hardly miss those "little luxuries."
Christie Garton, Founder and CEO of the 1,000 Dreams Fund

Even an extra $100 per month knocks $1,200 per year off your loan. Again, it's not a lot, but it's a start.

If even $100 extra seems like too much, start small. Side jobs can help you save money. There are several apps that allows you to keep the change when you make a purchase and more. We offer ideas on how to make extra money in "How to Make Money in College." Anyone can do these things even after college.

Related: 150 Ways to Save Money, Starting Today

Bottom Line

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Getting rid of student debt is possible.

Make sure you exhaust all your options before proceeding. Apply for another repayment plan if you can't afford your payments. Consider refinance if you want a lower interest rate. Take advantage of any loan forgiveness you are eligible to receive. Figure out what works best for your budget.

What works for one grad may not work for another. There is a light at the end of the tunnel - you just must find it.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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Student Loan Forgiveness


Should I Consolidate Student Loans


Student Loan Forgiveness Scams

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