App version: 0.1.0

How to Pay Off Student Loans

Lantern Comp Guide: How to Pay Off Student Loans
Nancy Bilyeau
Nancy BilyeauUpdated September 6, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
March 2025: The Saving on a Valuable Education (SAVE) Plan for federal student loan repayment is on hold due to a court injunction. As of late March, these loan repayment plans are available: Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment. Federal student loan consolidation applications are also live. To monitor the latest decisions on federal student loan plans, check the Federal Student Aid site.
Approximately 45 million Americans carry outstanding federal student debt, whether they graduated from college last year or a decade ago. There’s no question that for some, student loan payments are a real struggle.Bipartisan legislation ended the three-year-long payment pause on federal student loans, requiring interest accrual to resume on Sept. 1 and payments to resume in October 2023.So no matter whether you’re trying to dig out of a deep student-loan pit or you’re just beginning to set aside money, it’s time to devise a smart strategy for how to pay off student loans.Paying off student loans with speed requires a multi-pronged approach, depending on where you are in your education and career. What works one year might not work the next. These six approaches outline different plans of attack:

1. Begin Payment As Soon As Possible 

It’s possible to make loan payments while you’re still in school, though it’s not required. In fact, a six month grace period goes with most federal student loans. You don’t have to make use of it, however.The U.S. Department of Education eliminated most instances of federal student loan interest capitalization in July 2023. Now interest capitalization will no longer take place when a federal student loan borrower first enters repayment.Students may work a part-time high-paying job while in college to get ahead on their loans.Recommended: How Long Does It Take To Pay off Student Loans?

2. Make More Than the Minimum Payment

Paying extra each month can reduce your total loan cost and help you repay your loan faster. If you can continue making monthly payments even if you have satisfied future payments, you will pay off your loan faster. It’s important to notify your loan servicers to apply overpayments to your current balance and to ask if the additional payment amount can be allocated to your higher interest loans first.One way to make it easier: Set up automatic payments based on the extra payment. This way you won’t be tempted to change your mind.

3. Put Your Tax Refund and Extra Money Toward Your Payment

Consider dedicating your tax refund to paying off some of your student loan debt. Part of the reason you may have received a refund in the first place is because you get a tax deduction for paying student loan interest, says Federal Student Aid.A regular side gig dedicated to your student loan will make it vanish faster. You can earn extra money through any side hustle, such as driving for rideshare or food delivery. You can also explore writing novels or nonfiction as a self-published author. Any royalties you earn as a writer can go toward your student loan payments.

4. Determine if You Qualify for Loan Forgiveness

Sometimes it’s impossible to not only pay extra on your loan but also to cover the minimum. You may face an unexpected job loss or a change in life circumstances — crises that deal a heavy blow.There are student loan forgiveness and cancellation programs that, if you meet the requirements, could reduce your total loan cost and put you on the road to a post-student-debt financial life. Here are some examples:
  • If you are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program.
  • Under the Teacher Loan Forgiveness Program, if you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your loans.
  • If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan.
Recommended: Can I Volunteer to Pay Off Student Loans?

5. Try a Different Repayment Plan

The federal government has income-driven repayment (IDR) plans to help reduce federal student loan payments. IDR plans are intended to provide low- and moderate-income borrowers with an affordable monthly payment. Depending on your income and family size, your monthly payment on an IDR plan can be as low as $0. Borrowers typically have to recertify their income each year to remain in an IDR plan.Enrollees who don’t qualify for a $0 monthly payment may have to pay 5% to 20% of their discretionary income toward federal student loans. All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for some enrollees in the Saving on a Valuable Education (SAVE) Plan.Borrowers with original principal balances of $12,000 or less may be eligible for forgiveness of any remaining balance after making 10 years of payments under the SAVE Plan, which replaces the existing Revised Pay As You Earn (REPAYE) Plan, according to the Federal Student Aid Office.Extending your repayment term with an IDR plan may increase your total interest costs. Private student loans are not eligible for federal IDR plans, but private lenders may offer standard and alternative repayment plans. Contact your lender or student loan servicer for information about your loan repayment options.

6. Refinance Your Student Loans

You may consider student loan refinancing, which is borrowing a private education loan to pay off your existing student loans. Refinancing may be right for you if it gives you a lower student loan interest rate. (Refinancing for a longer term may increase your total interest costs.)The pros and cons to refinancing must be studied carefully. Once a federal loan is refinanced, you no longer qualify for federal loan forgiveness programs or IDR plans.Recommended: How Does Student Loan Refinancing Work?

Refinance Your Student Loans with Lantern by SoFi

When exploring your student loan refinancing options, credit rating becomes important as well as your debt-to-income ratio. With an excellent credit score, you may have a better chance at a low-interest loan. But there are deals of all kinds to be found.If you’re exploring student loan refinancing, Lantern by SoFi can help. With our online tool, you can easily compare student loan refinance rates from different lenders to find one that works for you.Recommended: Is Refinancing Student Loans Worth It? 

The Takeaway

While the resumption of monthly payments on federal student loans may not come as good news for many people, it provides an opportunity to take a look at your payment strategy. Of course, the most important thing is not to fall behind on required payments when your interest starts accruing.To reap the benefits of paying off a student loan faster, pursue one or more of these six strategies: Begin payments as soon as possible, make more than the minimum payment, use your tax refund and extra money, seek out loan forgiveness options, choose the right repayment plan for you, and consider whether you may benefit from student loan refinancing. Just be aware that refinancing limits a loan holder’s ability to participate in federal forgiveness programs.Lantern can help you compare lenders and apply for student refinance loans.

Frequently Asked Questions

Can student loans be refinanced?
Are there any strategies to manage multiple student loans?
What repayment options are available for student loans?
LCSL0723002

About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
Share this article: