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How One Woman Paid Off $68,000 in Student Loans in 2 Years

Conquer your student debt. Refinance now.

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How One Woman Paid Off $68,000 in 2 Years (Plus, How to Pay Off Student Loans Fast)

Like many high school students, Becky Blake dreamed of going to college away from home to enjoy her independence.

Despite her parents encouraging her to take advantage of in-state tuition, she decided to go to a private, out-of-state university. It was a pricier school, which means Becky graduated with $98,400 in student loan debt. Thanks to the high interest rates on some of her financial aid, that number was only going to grow.

“I was going to end up paying five figures in interest over the length of the loan,” she said. Becky wanted to do everything she could to minimize that number, and to get debt-free faster. By coming up with an aggressive debt repayment plan, she was able to pay off a good portion of her student loans—approximately $68,000—in just under two years. Here’s how she did it.

How Becky ended up with nearly six figures of student loan debt

When it came time to choose a college, Becky’s parents encouraged her to go in-state. To save even more money, they recommended she attend a community college for two years to get her associate’s degree, then transfer to a local state university to complete her bachelor’s.

However, Becky was determined to go to school farther away. And although her parents cautioned her about taking on too much student loan debt, they supported her decision.

Becky applied for federal student aid on her own. However, the federal government has caps on how much undergraduate borrowers can take out in Direct Subsidized and Subsidized Loans each year. Becky needed more money to pay for her education, so her parents applied for Parent PLUS Loans.

Parent PLUS Loans allow parents to borrow up to the total cost of attendance. They’re taken out entirely in the parents’ names; the student has no legal obligation to repay the loan. But in this situation, Becky agreed to repay those loans herself.

“We came to an agreement where those loans were my responsibility,” she said. “The Parent PLUS Loans were almost twice the balance of the loans under my name, and they were also at a much higher interest rate.”

Parent PLUS Loans tend to have the highest interest rates of any federal student loan. In this case, were as high as 7.9%, causing Becky’s loan balance to grow rapidly.

When she realized she had to make a change

It wasn’t until Becky sat down and reviewed her loan terms that she realized she needed to accelerate her student loan repayment if she wanted to be debt-free any time soon.

“I wanted to rip the Band-Aid off and get rid of the bulk of the loans that were going to cost me the most money in the long run,” she said. Becky also decided that she wanted to retire early. But to do that, she’d have to pay off her debt so she could focus on investing and growing her money.

“That was why I really decided it was time to start,” she said. “If I waited, the student loan interest was just going to accrue, and it would ultimately take me longer to pay off.”

What Becky did to pay off her student loans fast

Becky used the following strategies to tackle her debt and pay down her student loans fast.

1. Using the debt avalanche method

Becky had a mix of Direct Unsubsidized, Subsidized, and Parent PLUS Loans, all of which are federal loans. The Unsubsidized and Subsidized Loans had interest rates as low as 3.4%—much lower than the Parent PLUS Loans.

To pay off her debt as quickly as possible, Becky used the debt avalanche method. With this strategy, she listed all of her debt in order of interest rate, from highest to lowest. She kept making the minimum payments on all her loans, but prioritized putting any extra money toward the loans with the highest interest rates. By tackling the more expensive debt first, she was able to cut down on interest charges and save money over the life of her loans.

2. Refinancing her high-interest debt

Becky realized her high interest rates would make it nearly impossible to stay ahead of her rising debt. She also knew she had a way to lower those interest rates: student loan refinancing.

What is student loan refinancing?

Student loan refinancing involves bundling several existing loans into a single new loan with new terms. When you refinance through a private lender (as opposed to doing “student loan consolidation” through the U.S. Department of Education), the lender looks at the whole picture of your financial situation. That means that if you have a better job or a higher credit score now than when you originated your loans, the lender will likely offer you a lower interest rate on your new loan. That’s because you’re considered a lower-risk borrower now than you were before.

With a lower interest rate, your debt will grow at a slower rate, helping you pay off your loans faster. A lower interest rate also means you’ll pay far less in total interest over the life of the loan.

How Becky refinanced her loans

“What I decided to do was refinance all my high-interest loans, which I counted as anything with a 6% interest rate or above,” Becky said. “That was all of the Parent PLUS Loans, and two of the federal Unsubsidized Loans in my name that were at 6.8%.”

Becky’s parents helped her apply to refinance her high-interest loans to a private student loan, and she was able to qualify for a 4.7% interest rate on that debt—a significant improvement. Thanks to student loan refinancing, more of her monthly payment started going against the principle of this new loan instead of just the interest.

Is a student loan refinance right for me?

Refinancing is especially useful for student loan borrowers who took out their original loans when federal interest rates were high, or when their personal credit score was low. If your financial situation has improved—or if you know national interest rates are lower now—it might be time to consider refinancing.

Student loan refinancing has perks aside from just lowering your interest rate. Because you’re getting a new loan, you may also be able to secure more favorable loan repayment options. Refinancing can allow you to switch from a variable to a fixed interest rate, lower your monthly payment, release a cosigner, or change the length of your repayment period. You can also switch to a new loan servicer that offers better borrower protections, like deferment or forbearance options.

The pros of student loan refinancing

If you meet the eligibility requirements for student loan refinancing, you may be able to:

  • Organize your student loan debt into a single, simple monthly payment.
  • Secure a lower interest rate.
  • Switch from a variable to fixed interest rate, or vice versa.
  • Find a lender with better repayment options or borrower protections.
  • Release a cosigner.
  • Lower your monthly payment if you refinance for a longer term.
  • Pay off your loans faster if you refinance for a shorter term and higher monthly payment.

The cons of student loan refinancing 

All that said, refinancing isn’t right for everyone. Here are a few caveats to consider.

  • You could lose access to federal student loan protections if you refinance federal loans with a private lender.
  • If your credit isn’t excellent, you may need a cosigner to qualify for lower interest rates.
  • If national interest rates are higher now than when your loan originated, you may have trouble finding a lender who can offer you a lower rate.
  • If you choose to lengthen your loan term to lower your monthly payment, you may pay more in interest over the life of the loan.

3. Keeping her expenses as low as possible

After graduating from college, Becky continued living on a college student’s budget.

“I didn’t change my lifestyle at all after college,” she said. “There was no lifestyle inflation. So I essentially didn’t spend money on anything like clothing or going out to eat—what I would consider discretionary categories—because my whole philosophy is spending based on your goals and values.”

Since she lived in a high-cost area, she also lived with her parents for nine months.

“It was really humbling that this decision I made to have four years as an independent adult resulted in another period of my life where I had to live with my parents and be dependent,” she said. “That was kind of tough on my ego. But ultimately, it was very helpful for my financial goals.”

4. Taking on a side hustle

Becky did get a job right out of college as a consultant. Her starting salary was $47,500—a solid income for a new graduate. But because she wanted to pay off her debt as quickly as possible, Becky focused on boosting her income so she could make extra payments.

“I got a part-time job as a public educator,” she said. “And I got into rewards points, mostly cashback rewards from credit cards and banks, to make more money.”

By keeping her living expenses low, refinancing her debt, and working a side gig, Becky was able to put as much as $2,500 extra toward her loan payments every month.

In under two years, she was able to pay off approximately $68,000 of her high-interest loans. By paying off her loans early, she was able to save about $24,000 in interest charges.

More ways to pay off student loans fast

Becky’s approach showcases some of the best strategies for getting debt-free fast. However, if you don’t have the option to live with a relative or take on a side hustle, there are other options out there. Here are eight more ways to pay off student loans fast.

5. Organize your student loan debt and make a repayment plan

For people overwhelmed by their debt and unsure where to begin, Becky recommended facing the hard facts right away.

“Make sure you collect all of your debts and organize them, whether that’s on a spreadsheet or just on a piece of paper,” she said. “Know how much you owe, what the interest rates are, and what your minimum payments are. It’s scary to do. But once you have it all in one place, you can make a plan and figure out what direction you want to attack it from.”

If you’re not sure how much you owe, your first step is to track down your outstanding debt online. For private loans and other debt, like credit card debt, start by pulling your credit report from annualcreditreport.com (this won’t affect your credit score).

If you have federal student loan debt, you can either log into your studentaid.gov account to figure out how much you owe, or look up your debt using the National Student Loan Data System.

6. Pay more than the minimum due

Your “minimum payment” is the amount you have to pay each month to avoid defaulting on your student loans. For federal loans, this is generally $50 on the standard plan. For private loans, your minimum will vary, but it should be visible on your bill. (If you can’t find it, contact your loan servicer.)

For most student loans, the minimum payment is largely composed of interest and fees. That means only a small fraction of your money is actually going toward paying down the principal, or the actual amount you borrowed. And the longer you take to pay off the principal, the longer those interest and fees have to pile up. Over time, you could pay thousands of dollars in interest without appreciably lowering your actual debt.

However, when you pay more than the minimum due, the extra goes straight toward the principal. That can help you pay off student loans fast and save hundreds if not thousands on interest and fees over the life of the loan.

7. Make additional payments

You don’t have to commit to a bigger monthly payment every month to pay off your student loan debt faster. You can also make additional payments whenever you have any “found money” to put toward your debt. “Found money” refers to gifts, unexpected tax refunds, or other financial windfalls. Instead of using that extra cash to splurge, put it toward your student loan balance.

8. Apply for loan forgiveness

Student loan forgiveness programs can help you dramatically decrease the amount you owe in as few as 10 years. If you have federal student aid and work for a nonprofit or the government, you may be able to qualify for Public Service Loan Forgiveness, or PSLF. Typically, if you can make 120 payments over 10 years while holding down a qualifying job, the rest of your debt will be forgiven.

If you’re in the U.S. military, you could qualify for additional student loan forgiveness programs. There are also federal forgiveness and loan cancellation options available specifically for teachers, like Teacher Loan Forgiveness or Perkins Loan Teacher Cancellation.

If you can’t currently afford your federal student loan payments or are in danger of defaulting, you may also qualify for an income-driven repayment plan. Keep in mind that this may forgive some of your debt, but it will extend your loan term to 20 to 25 years. If you can afford to pay down your loans more aggressively and get out of debt faster, an income-driven repayment plan might not be your best option.

9. Take advantage of interest rate discounts

Some lenders offer discounts for setting up automatic payments from your bank account. For federal loan servicers, this discount comes in the form of a 0.25% interest rate reduction. While minimal, an auto-pay discount could help you save a few hundred dollars over the life of your loan, and make your student debt a little easier to pay off.

Other discounts are harder to find, but a few loan servicers offer a slight interest rate reduction for making a certain number of on-time payments. Others offer referral bonuses or discounts connected to graduating or maintaining a certain grade-point average. Contact your loan servicer to see what discount options they can offer you.

10. Leverage tax deductions and credits

If you’re currently paying tuition to either an undergraduate or a graduate program, you may qualify for a tax credit. You can save up to $2,500 through the American Opportunity Credit, and $2,000 through the Lifetime Learning Credit. If you’ve graduated but are still paying off your student loans, you could qualify for a tax deduction of up to $2,500.

While tax credits are usually more beneficial than deductions, both reduce the amount of money you have to pay in taxes. That leaves you with a bigger tax refund, and therefore more disposable income to put toward your student loans each month. This can help you pay down your student loan balance more aggressively and get out of debt faster.

11. Make biweekly payments

If you can, switch from automatic monthly payments to automatic biweekly payments. When you pay biweekly, you end up making 13 payments per year instead of 12. That helps you pay down your student loan balance faster without even thinking about it.

12. Ask if your employer offers student loan repayment assistance

A growing number of companies offer student loan assistance programs as an employee perk. Thanks to the CARES Act, an employer can now make up to $5,250 in tax-free payments directly to an employee’s student loan servicer between now and the end of 2025. The other good news: This doesn’t count as income, so you won’t have to pay any taxes on that $5,250.

Before you take a new job, consider any repayment programs as an important part of your benefits package. If you already have an employer, ask them if they have a program in place that you can qualify for.

See how much you could save with Earnest

Student loan debt can seem insurmountable, but by making a plan and sticking to it, you can get on top of your debt and fast-track your journey to financial freedom.

As Becky’s story illustrates, student loan refinancing can be an invaluable tool in reducing your interest rate and attacking your debt head-on1. When you refinance2 with Earnest, you can customize your loan term, release a cosigner, and sign up for automatic biweekly payments. On top of that, Earnest never charges fees for paying early or extra.

Try plugging your student loan amount and interest rates into Earnest’s free refinancing calculator to see how much you could save. It’s quick, easy, and it won’t impact your credit score.

 

 

 

Disclaimer: The opinions expressed by the interview subjects are not necessarily those of Earnest. This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for total cost of your refinanced loan.

2 Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 48 states Earnest Operations LLC is authorized to lend in (all but Kentucky and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Refinancing is subject to credit qualifications. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit www.earnest.com/licenses for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.

Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

© 2022 Earnest LLC. All rights reserved.

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.