Steps to Pay Off Student Loan Debt

These are the steps Greg and Elena need to follow in order to ensure they can pay off student loan debt and start a family:

1. Defining the Goal

Greg and Elena want to get out of debt as quickly as feasible while maintaining a modest lifestyle. They’d like to buy a house and start a family in the next 5 years and don’t want to have competing financial obligations.

2. Analyze the Cost

Greg and Elena pull together all their loan details (amounts, interest rate, minimum payment) and organize the information to better understand their situation. They considered loan consolidation and ran the numbers to see if it could be advantageous in meeting their goal. Then they looked at their budget and assessed the amount they can earmark for debt.

3. Create an Action Plan

Armed with information, they create a debt snowball plan and start paying off the lowest balance first. This plan gives them little ‘wins’ as they go and encourages them to focus on progress. This also gives them an end date of when they can expect to be debt-free!

4. Loan Forgiveness

Elena works at a non for profit hospital and is eligible for the Public Service Loan Forgiveness program. She compared the opportunity cost of paying minimum payments and interest on her debt and being tied to a full-time schedule at a non-profit hospital, vs. the loan forgiveness potential down the road.

Resources if You’re Looking to Pay Off Student Loan Debt 

Loan Consolidation:

Federal loans have the option to be combined together into one big loan. This can simplify your payments into one monthly bill. Interest rates won’t decrease and the loan terms may increase. It’s not uncommon for students to graduate with 8-10 different loans which translates to 8-10 different monthly payments. This may be a good option to make the debt more manageable. If you’re considering loan consolidation for the goal of saving money, it isn’t a great option for federal loans.

Loan Refinancing:

Private loans also have the option to be combined together or refinanced. Private loans cannot be added to Federal loans. If you have a good credit score, and the new loan has a lower interest rate, you could save money.

Loan Repayment:

There are several strategies for debt repayments: lowest balance first, highest interest rate first, extra payments on all loans, etc. The most popular is the snowball method which pays off the smallest balance first and then compounds the payments towards the next debt.

College Planning in Summary

College planning affects everyone, regardless of your income, savings, or abilities… and there is no one size fits all solution. Education planning looks different depending on your life stage, goals, and financial situation.

• Starting early produces the best results when it comes to savings.
• Being resourceful produces the best opportunities when it comes to financial aid.
• Being diligent produces the best potential when it comes to achieving your goals.

The key is defining what your goal is and then mapping a path to achieve it.