How to pay off student loans in 5 years: A step-by-step guide

How to pay off student loans in 5 years: A step-by-step guide
Written by Publishing Team

Our goal here at Credible Operations, Inc. , NMLS Number 1681276, referred to as “Credibility” below, is to provide you with the tools and confidence you need to improve your financial position. Although we promote products from our lender partners who compensate us for our services, all opinions are our own.

If you want to pay off your student loans within five years, consider increasing your income, reducing unnecessary expenses, and refinancing your loans. (iStock)

Paying off student loans takes time but it doesn’t have to take decades. The faster they pay them off, the more you can save with interest, and the sooner you can save money to put toward other financial goals, such as saving for retirement or buying a home.

Although the standard repayment term for most federal student loans is 10 years, it is possible to pay them back in five years with planning, motivation, and discipline.

How to pay off student loans in 5 years

The first step in paying off your loans is to find out your current student loan balance and interest rate. To get this information for federal student loans, you can check the National Student Loan Data System operated by the U.S. Department of Education, or log into your online account at the loan service website.

If you have private student loans, you will need to contact the loan administrator(s) or log into your online account to obtain this information. The Consumer Financial Protection Bureau recommends reviewing your credit reports if you don’t remember who your provider is. You can check your credit reports weekly for free until April 20, 2022 by visiting

Once you have your current balance and interest rate, enter the information into the student loan interest calculator to get an estimate of how much you need to pay each month to meet your goal.

You can use credibility to compare student loan refinancing rates in minutes.

Know your payment history

It takes about 21 years to pay off student loans on average, according to a 2013 study by the One Wisconsin Institute. But due to different financial circumstances and loan terms, the student loan repayment schedule will likely be different. For private student loans, you can find the repayment date by reading the loan term agreement or contacting the lender.

If you have a federal student loan, contact the loan officer or check their website. You might have been assigned a payment plan when you first started paying off your loan if you didn’t specify one, so double-check your repayment history. With your payment history and current balance, you can begin to create a five-year payment plan.

Set a budget

A budget can help you decide if you can save extra money to pay your monthly student loan payments. If you don’t have one, start by listing all specific expenses and income streams. Review your spending over the past few months to see how much you’ve spent.

Next, divide your expenses into “wants” and “needs.” For example, the need could be food, but there could be a need to eat out at a particular restaurant each month.

Next, divide your expenses into categories and give each one an amount based on your current spending habits.

Here is a list of budgeting tips and tricks that you can use to stay on track.

  • Use a budget app. Don’t want to write down your budget? Use an online budgeting software tool to automatically categorize and track your expenses.
  • Download the budget template. If you prefer paper and pencil, consider printing a monthly budget template to keep track of your expenses.
  • Get a budget accountability partner. Although creating a budget can be easy, sticking to it can be difficult. Ask your spouse, family member, or friend to meet with you every month to review your progress.
  • Automate your savings. If you’re looking for an easy way to save more money to put into your loans, set up an automatic transfer from a checking account to a savings account each month.

Reduce unnecessary expenses

To free up some extra cash to pay off your student loan debt in five years, find ways to cut expenses.

Here are some common ways you can reduce your spending.

  • Get rid of the cable. Cable scraping can save you hundreds of dollars a year.
  • Cancel your gym membership. If you cancel your gym membership and work out at home, you can free up some extra cash from your gym fees. For example, if your gym membership is $65 a month, you can save $780 annually.
  • Get a roommate. The cost of housing is probably your biggest expense. If you love your home or apartment and don’t want to move to a cheaper location, consider sharing the costs with a roommate. If your monthly rent or mortgage payment is $1,600, you can save $800 per month if you split it two ways.
  • bike to work. Car ownership can be expensive. Between fuel costs, car insurance, and repairs, you can spend thousands of dollars. To reduce these expenses, consider cycling to work, if available.
  • Use your local library system. If you’re looking to cut your entertainment budget, visit your local library. Some library systems allow you to borrow movies and magazines for free. In addition, you will likely find free activities for adults and children.
  • Limit credit card use. It’s easy to swipe your card without thinking about how much money is in your account. If you’re guilty of this, keep your credit card used to a minimum. This can also help you avoid multiple loan debts.

Make bi-monthly payments and sign up for automatic payment

An automatic payment for federal student loans gives you a discount and some private lenders have an automatic payment discount. Although you are only required to make one monthly payment, paying every two weeks can be an easy way to put extra cash into your student loan without much effort on your part.

For example, if you follow a monthly payment schedule, you will make 12 student loan payments annually. But if you switch to a bi-monthly payment schedule, you’ll make 26 half payments, which equates to 13 payments per year.

With Credible, you can compare student loan refinancing rates from multiple lenders.

Take a side hustle

Increasing your income is another way to free up extra money to pay off student loans faster. Start by looking for promotion opportunities in your current job. If you want to make money faster, consider getting a side hustle. Here are some ideas.

  • Drive for a ride-sharing service. If you own a car, consider driving for a ride-sharing company on weekends or evenings to earn extra cash. Ridesharing platforms give you the option to make deliveries if you are not comfortable with picking up people.
  • Rent your car. Another way to make money from your car is to rent it out while you are not using it.
  • Rent an extra bedroom. If you don’t want a permanent roommate and have an extra bedroom, you can make money by listing them on a rental platform.
  • Be a virtual assistant. Do you enjoy performing administrative tasks? Consider becoming a virtual assistant – someone who provides business support from a remote location. You can find jobs by searching online recruitment platforms.
  • Sign up to be a beta tester. If you love testing new apps, products, and websites, sign up to become a beta tester with BetaTesting or IO testing. You can earn up to $50 for each problem you find.

Consider refinancing your loan

Private student loan refinancing involves taking out a new loan with a different interest rate and repayment term to replace your existing loan.

If you have good credit and a steady job, you may qualify for a lower interest rate. Choosing a shorter or similar repayment period may help you pay off your principal balance faster and save interest over the life of the loan.

Another benefit of student loan refinancing is that it can help you combine federal and private loans into one, making it easier for you to keep track of your loans. The downside to refinancing both federal and private student loans into a single loan is that you give up on federal protections, so think carefully about whether this makes more sense for your situation.

If you only have federal student loans, you may be able to combine them into a single loan with a direct consolidation loan. But you may not receive a lower interest rate than you currently pay — when you consolidate your federal student loans, your new loan will have a fixed interest rate based on the average of all the loans you consolidate.

How much can refinancing save you?

The amount you can save from refinancing your loan varies based on factors such as credit score and income. Let’s say you have a 10-year loan of $20,000 like this:

  • April: 6.0%
  • Monthly Payment: $222
  • Total interest: $6,645
  • Total amount to be paid: $26,644

You can refinance for a five-year loan and lower the interest rate and the total amount you have to repay:

  • April: 5.2%
  • Monthly payment: $379
  • Total interest: $2,756
  • Total amount to be paid: $22.755

As you can see, refinancing can provide you $3,889 in interest over the life of the loan in this scenario. Plus, you can pay off your student loan debt in half the time.

Before refinancing, be sure to weigh the pros against the cons. Keep in mind that refinancing a federal student loan means giving up federal benefits, such as access to income-driven payment plans and student loan forgiveness programs.

If you decide that refinancing is right for you, be sure to shop for comparison rates from several lenders.

You can use credibility to compare student loan refinancing rates without affecting your credit score.

Loan Forgiveness: An Alternative to Paying Off Student Loans

Paying off student loans early isn’t the only option you have to save money if you have federal student loans. They usually have access to student loan forgiveness programs (unfortunately, private loans are not available). To qualify, you must meet specific criteria, such as working in a particular job.

Here are some federal student loan forgiveness options.

  • Public Service Loan Forgiveness (PSLF) The PSLF program is available to borrowers who have direct loans and are employed full-time by the government or a non-profit organization. If you qualify, you can get relief in less than 10 years by making 120 “qualified monthly payments” under an income-driven payment plan.
  • Teacher Loan Forgiveness Program If you’re a teacher, you can receive up to $17,500 in loan forgiveness on your federal subsidized and unsubsidized loans and federal subsidized and unsubsidized Stafford loans. To qualify, you must have worked full-time for five consecutive years at a low-income school or educational services agency. If you’re not sure if your workplace qualifies, check out our Low Income Guide to Removing Teachers.
  • Income Based Payment Plan (IDR) – This type of payment plan is designed to make your monthly loan payments affordable based on your income and family size. There are four IDR plans to choose from and repayment terms range from 20 to 25 years. Once the payment period is over, any remaining balance you have is forgivable.

Whether you’re paying off student loans early or want to take advantage of student loan forgiveness, you have plenty of options.

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