How to Pay Off $30,000 of Student Debt in 3 Years

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Kat Tretina contributed to this article

College is expensive. And it probably won’t surprise you to learn that the average graduate leaves school with more than $39,000 in student loan debt.

It’s a difficult situation to be in. Most students take at least 10 years to pay off these loans. Even former President Obama didn’t pay off his student loans until he reached age 43.

This long time frame is a problem; the longer it takes you to pay off that debt, the longer it will be before you start building your own financial foundation.

If you want to retire your student loans pronto, here’s a five-step plan that will help do just that.

1. Take An Oath

I know you are reading this because you are fired up about getting out of debt and that’s great. But believe me, when all your friends are packing up the car to go to Vegas for the weekend or making plans to go skiing next month, that fire in your belly just might fizzle out.

You can pay off your debt fast; I guarantee it. But in order to do so, you and everyone in your household will have to be committed to the process. Some people are able to pay off their loans without making any big changes to their lifestyle. But most people find they need to do things a little differently if they want a very different (and positive) outcome.

That’s why the first step is to promise yourself that paying off your student debt is a priority and you are going to get it done in three years or less. Unless you are 100 percent on board with this plan, it’s going to be hard to keep going when things get a little uncomfortable.

Are you willing to sign on? Great. Let’s go on to the next step.

2. Refinance Your Debt

The next thing we want to do is cut back the interest you currently pay for the debt you already have. That way, more of your payments will go toward the principal, rather than interest charges.

If you have good credit, you can qualify for a lower interest rate by refinancing your student loans. When you refinance, you work with a private lender to take out a new loan for some or all of your current student loans. The new loan will have completely different repayment terms than your old one, including interest rate, minimum monthly payment, and length of repayment.

Although you can refinance both federal and private loans, there are some downsides to refinancing federal loans. You’ll lose out on certain protections and benefits, such as access to income-driven repayment plans. However, if you’re focused on getting out of debt as quickly as possible, refinancing can be a smart way to achieve your goal.

If you decide that it’s for you, compare offers from multiple refinancing lenders to get the lowest rate.

3. Pay Off the Most Expensive Debts First

Now that you’ve done all you can to cut down the interest rates on your loans, it’s time to use some fancy footwork to get out of debt faster. The idea is to use as much money as you can to pay down the principal rather than wasting it on interest that only makes your creditors rich.

You did some of that already in the step above by refinancing to the lowest rate possible.  Now, we’re going to take this idea to the next level by using the debt avalanche method to pay off your loans.

With this approach, you tackle the debt with the highest interest rates first. To get started, list all of your loans and their interest rates. Continue making the minimum payments on all of them, but put any extra money you have toward the loan with the highest rate. For example, let’s say you have the following loans:

  • $10,000 federal student loan at 4.45% interest
  • $5,000 private student loan at 9% interest

At 9% interest, the private student loan is the most expensive form of debt you have, so it makes sense to try to pay that one off more aggressively. Paying it off ahead of schedule will help you save more money in the long run.

4. Do the Math

At this point, you haven’t made higher payments, so it hasn’t cost you anything. You’ve just rearranged your debts and debt payments to optimize the power of your dollars. And you’ve also organized your financial life in a big way.

These are big wins and you’ve accomplished a great deal. Still, taking these steps probably won’t be enough to shave seven or more years off your debt schedule.

To do that, we have to gather a little more information. The first step is to calculate how much money you’ll need in order to pay off your debt in three years.

Let’s keep things simple and assume you owe $30,000 and your blended average interest rate is 6%.  If you pay $333 a month, you’ll be done in 10 years.  But you can do better than that.

You can use our student loan payment calculator to find out that you’d need to pay $912.66 each month in order to put those loans out of your life in three years.

Doing the math is the easy part, but coming up with that extra cash is tough. That’s where our next step comes in.

5. Earn the Money

You can earn money for debt repayment by either spending less, earning more, or doing a bit of each. This step is harder than the preceding four, but not impossible.

Go through your bank and credit card statements for the last three months. Circle each item you can live without for the next three years. If it’s an ongoing expense that you really don’t need, cancel it right away. If you see a pattern of spending, like dining out or expensive vacations, make immediate adjustments.

If you have already cut back to the bone, think about ways to earn more money. One of the best ways is to launch a side hustle, where you can make extra cash on your own schedule. Working just a few hours a week can bring in hundreds each month, which you can apply to your debt repayment. That extra income can help you pay off your loans years ahead of schedule and save money on interest charges.

The most important thing is to stay focused.  Celebrate your progress even if you can’t get this done in three years.  You’ll be amazed at how good it feels to see those debt balances melt away.  Once you get a little success under your belt, it will be easier to find more ways to apply more money towards your debts.

Photo credit: TaxCredits.net

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.