When the average person leaves school with federal student loan debt, they have 10 years to pay back their loans under a Standard Repayment Plan. But with interest charges, you would end up paying thousands more than you borrowed in the first place.
The average 2016 graduate had $37,172 in student loan debt. If you had Perkins Loans at 5% interest, that means you’d pay back more than $47,000, with over $10,000 of that being interest. But if you accelerated your repayment and paid off the loans in five years, you’d pay just $4,800 in interest.
How to pay off student loans in 5 years
Use a student loan prepayment calculator to find out how much extra you need to pay on your loans each month to pay them off in five years. On a 10-year plan with the above example, you’d pay about $400 a month. To pay it back in five, you’d need to boost your payments to a little over $700.
Cutting your repayment term in half can save you thousands over time, but finding the extra cash for payments isn’t easy. Using these nine tips, you can create a comprehensive plan for paying off student loans early and becoming debt-free.
1. Establish your goals
To stay motivated, think about your personal and financial goals. If student loan debt is holding you back from starting the business you dreamed of or buying a home, that can be a powerful motivator.
Print out a picture or symbol of your goals and tape them next to your computer or on your credit card to remind you of what you’re trying to achieve.
2. Build a budget
The most important part of your repayment plan is your budget. If you don’t have one, you have no idea how much money is coming in or going out, or how much extra cash you can allocate to your student loans.
Sit down and list all of your set expenses, such as rent, utilities, car payment, student loan payment, groceries, insurance, and other recurring costs. Include everything you spend money on regularly, so you can get a full picture of how much you spend each month relative to your income.
3. Cut expenses
Once you have a budget in place, identify areas where you can cut back to free up more money for your student loan payments. Bring up your latest bank statements and credit card bills to identify your spending patterns and recurring charges. Common areas to cut back on include:
- Gym membership: While you may love your fitness classes, they can be pricey. For example, a monthly membership at OrangeTheory costs up to $110 a month, while a month at Planet Fitness is just $10. To be more cost efficient, you can run or walk outside for free. You may be more limited, but you can still get a great workout without spending a dime.
- Eating out: Many people are surprised by how much they spend eating out at restaurants. But a lunch here and there when you’re tight on time at work can add up. Brown-bagging it and cooking at home can help you save.
- Groceries: In the U.S., 40 percent of the food we buy goes to waste. That’s money you’re literally throwing away. Meal planning and buying food consciously can reduce how much you spend at the grocery store.
- Coffee: Your Starbucks habit can cost you. A tall latte is $3.45, and that daily treat adds up. If you get a latte every work day, you’re spending about $70 a month just on coffee. Deciding to make coffee at home more often can save you money every month.
- Clothes: Calculate how much you’re spending on clothes each month — you may be shocked. Cutting down to replacing items when they’re worn out and buying only a couple of items each season can dramatically improve your budget.
4. Rethink your living arrangements
While you may love the idea of getting your own studio or cute one-bedroom, it might make sense to reevaluate your living situation. As of 2015, the average gross rent was $1,021 a month. That’s a lot of money that could go towards your debt repayment.
If your parents or relatives would allow it, living with them while you pay off your debt can be an excellent strategy. Even if your family charges you rent, it’s likely going to be cheaper than an apartment complex’s prices. You can save a substantial amount of money on rent and apply that to your student loans, helping you pay them off much faster.
If living with family isn’t an option, consider getting a roommate. Splitting the cost of utilities and rent can make a two-bedroom apartment much more affordable. In addition, if you can work together to buy things like groceries or housing supplies, you can reduce your expenses even more.
5. Increase your income
While budgeting and cutting expenses are smart steps, there’s only so much you can eliminate. If you’re wondering how to pay off student loans in five years, boosting your income is an important step. While earning more money might sound impossible, you might be able to get an increase either at your full-time job or start a side gig.
If you’re doing good work at your job and are contributing to the company, asking for a raise can be an easy way to boost your salary. Approximately 40 percent of people who ask for a raise get one, so it’s worth speaking up if you don’t feel your compensation is adequate.
If a raise isn’t an option or you want to boost your income even more, a side hustle can help pay down your debt. Whether you deliver packages, walk dogs, or shop for groceries, there are lots of ways to earn extra money on your own schedule.
Another factor to consider is your current job. While you may love your current gig, if the salary is not enough for you to manage your expenses and pay off your debt, it may be worth transitioning to a new job in a higher-paying industry. It’s a tough decision, but it can pay off in the long run.
6. Look for grants and assistance programs
There are some grants and repayment assistance funds available to help borrowers pay back their student loans. Particularly if you’re a teacher, nurse, or medical professional, you might be able to find programs that will eliminate some or all of your debt.
While the federal government and non-profit organizations may offer student loan aid, also check with your state. Some areas offer programs for professionals in particular fields or simply for living and working in the state. Check out our student loan repayment grants guide or use student loan repayment search tool to find a program that can accelerate your debt payoff.
7. Check with your employer
A growing number of employers are establishing student loan repayment assistance programs for their workers. As both a recruitment and retention initiative, helping employees repay their student loans can improve company morale and reduce stress.
When looking for a new job, student loan repayment aid can be a huge benefit. Ask potential employers if they have a program set up 0r ask your current boss if the company would be willing to look into it. Many startups and small businesses are adding student loan programs to compete for top talent.
8. Consider refinancing your loans
If you are laser focused on becoming debt-free within five years, one approach that can help you accomplish your goal is refinancing your loans. If you refinance, you’ll work with a private lender to take out a new loan for the amount of your current federal or private ones.
The new loan will have a different interest rate and repayment term than your old loan. If you have good credit and steady income, you could get a significant interest reduction, which can help you save thousands over the length of your repayment term.
While refinancing can also lower your monthly payment, sticking with your current payment — or adding to it — can help you pay off your debt even faster. However, think carefully about whether or not refinancing is for you. By refinancing your federal loans, you give up certain benefits like access to income-driven repayment plans or deferment options.
To make an informed decision, use a refinancing calculator to find out how much you could save and how much faster you can pay off your debt.
9. Treat yourself
While you’re working towards paying off your debt in full, it’s easy to feel deprived or exhausted by all of your hard work. That’s why it’s so important to set up small, achievable milestones along the way. When you meet those little goals, reward yourself with something affordable that refreshes you.
For example, you could celebrate every time you pay off $5,000 of your debt. Take a hike in the park with friends, indulge in a lazy day complete with Netflix-binge, or open up a nice bottle of wine. Little treats can help you feel motivated to help you see your plan through.
If you’ve been trying to come up with a plan on how to pay off student loans in five years, know that it is achievable. If you’re diligent about both your spending and earning potential and you approach your student loans strategically, you can pay off your loans years earlier than planned.
Ready to take charge of your debt? Sign up for our free app to manage your loans and find repayment plans or refinancing offers that will work for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|