Among people with student loans, the average loan balance is $28,950 per borrower. That's a substantial sum of money, and this debt can be with you for a long time. But it doesn't have to be.
In fact, if you implement a few simple strategies, you may be able to become free of this financial burden in just five years' time.
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1. Make extra payments
If you want to eliminate your outstanding student loan balance in five years, making extra payments is one way to do it.
The exact amount of extra money you'd need to send your creditor each month varies, depending on how soon you're currently scheduled to pay off your loan, as well as based on your interest rate and total outstanding balance.
Say, for example, you owe the average balance of $28,950 at an interest rate of 5.8% , which is the average rate among all educational debt (including both federal and private loans).
If you had 10 years left to pay on your loan, your monthly payments would be around $318.50. But if you wanted to be debt-free in five years, you could tack an extra $200 onto each monthly payment. That's a lot of extra cash, but there are ways to find additional funds to pay more than the minimum, including:
- Continuing to live like a college student in a cheap apartment with roommates and keeping your spending to a minimum until your debt is paid.
- Living at home temporarily with your parents, if that's an option after graduation.
- Working an extra job for a few hours a month to bring in an extra $200 to send to your student loan lender.
Paying off your student debt and getting your income back may be worth these temporary sacrifices.
2. Refinance your student loans
Refinancing your student loans could be another option to pay off your entire debt balance within five years. You could make absolutely sure you hit this target by refinancing existing debt to a new loan with a five-year payoff time.
When you refinance, you must use a private student loan refinancing lender to do so. You can't refinance with the Department of Education, as the DOE doesn't offer refinance loans. As a result, this is usually the best option only for private student loans because refinancing federal loans would mean forgoing valuable borrower benefits.
If you refinance private loans, you will get a new refinancing loan that has a set payoff time -- and scheduled monthly payments that allow you to repay your balance in full by that deadline. Many refinance lenders will allow you to refinance to a loan with a five-year term, so consider this option if you can afford the monthly payments that would come with your new loan.
You may be able to score a lower interest rate by refinancing, which could make it easier to wipe out your debt, since more of your money will go to principal each month.
3. Take advantage of employer assistance
A growing number of employers are offering student loan assistance programs, in part due to the CARES Act legislation that allowed companies to provide up to $5,250 in tax-free loan repayment assistance per employee each year through 2025.
If you can find a company that will help you pay your loans, the extra money that becomes available to you makes it easier to make the additional payments necessary to become free of your financial burden in five years.
Many federal agencies also offer loan repayment help, in addition to private employers. This means working for the government could be an option to get extra help with your loans as well.
By implementing some or all of these techniques, hopefully you can pay off your total outstanding loan balance in five years (or less). Whether your balance is above or below the average, it may be worth looking into ways to get this debt off your books ASAP so you can devote more of your money to saving for retirement or other important goals.
