With the average student leaving school with over $40,000 in debt, it’s no surprise many see paying off student loans as a daunting task to accomplish. But it doesn’t have to be. And now that Biden has postponed student loan repayments until May 2022, you’ve got a unique opportunity to get ahead over the next four months. It’s something the president himself is encouraging student borrowers to do.

“As we are taking this action, I’m asking all student loan borrowers to do their part as well: take full advantage of the Department of Education’s resources to help you prepare for payments to resume; look at options to lower your payments through income-based repayment plans; explore public service loan forgiveness,” said President Joe Biden in a statement announcing the latest extension.[1]

With that in mind, we’ve created this guide to help you find the right solution to pay off your loans in 2022.

Table of contents:

Taking advantage of the May 2022 forbearance extension

President Biden announced in early 2022 that automatic forbearance on federal student loans would be extended to May 1, 2022. This means that the pause on payments and freeze on interest granted by the CARES Act remains in effect.

While you are not required to make any payments on your loans do, if you have the means to make them, you should. Any payments made before May 1 would be fully applied to the principal balance you owe. This gives you a unique opportunity to significantly decrease your balances since no portion of your payments would be used to cover the interest.

“Borrowers have the rare opportunity to pay off student loan interest-free right now and that’s huge,” says Howard Dvorkin, CPA and Chairman of Debt.com. “If you have the ability to make any payments at all right now, I encourage you to do so.”

To make payments, during the automatic forbearance period, simply contact your loan servicer to arrange the payments.

Step 1: Evaluate your debts

The first step is to understand how much debt you have and what types of loans you hold. It may sound crazy, but many people leave school with no idea of how much they owe. This is crucial information as you develop a plan to pay off student loan debt quickly.

  1. You can find your federal student loan total through studentloans.gov.
  2. For private student loans, you need to check with each loan servicer OR you can check your credit report to see all the loans in your name.

It’s important to note which debts are private and federal, because this determines which repayment plans you can use. If you just graduated, also note when the repayment period on each loan starts; most federal loans have a six-month grace period.

Step 2: Evaluate your budget

The path you use to pay off student loan debt largely depends on how much income you have on-hand for elimination. If you have disposable income to burn, you can pay off student loans debt fast without stressing your budget. On the other hand, if money is tight, you may need a plan that focuses on lower monthly payments.

Income security matters, too; that’s how confident are you that your income will at least remain steady. For example, you may choose to consolidate all your loans together (federal and private) with a private consolidation loan. However, this would make you ineligible for federal relief programs if you run into trouble down the road.

Step 3: Get familiar with different repayment plans

There are different repayment plans for different types of student loan debt and various needs:

  1. Private consolidation loan: This is where you take out a new loan to pay off student loans. You qualify based on your credit and can use the funds to pay off federal and private student loan debt.
  2. Federal standard repayment plan: This is the repayment plan your federal loans automatically fall into if you don’t choose another program. It pays off student loans in fixed payments over 10 years.
  3. Federal graduated repayment plan: This program is also 10 years; payments start lower and increase gradually over time. The idea is to match payments to your income as you advance in your career.
  4. Federal income-based repayment: This is hardship-based program that matches the monthly payments to your income and family size. The payments usually come out to roughly 15% of your take-home income.
  5. Federal income-contingent repayment: This is another hardship program with slightly higher payments. In general, you end up paying roughly 20% of your income.
  6. Federal Pay As You Earn plan: This is a specialized hardship plan for loans taken out after 2011. It can reduce your payments to 10% of your income or less, providing the lowest payments possible.

All the hardship based plans offered through the federal government have terms over 20 years. However, if you qualify for Public Service Loan Forgiveness, the government forgives your remaining balances after 120 payments (10 years).

Step 4: Decide if/how to divide your loans between repayment plans

This is where paying off student loans can get tricky. There is no requirement that all federal student loans must go into the same repayment plan. In fact, you can even do strategic things like having two standard repayment plans running at the same time. Since standard monthly payments depend on the total debt included, splitting your debt up can adjust how much you pay each month.

In general, you can’t enroll in a hardship plan and another hardship plan or a standard plan at the same time. However, you can pay off federal student loans with part of a private consolidation loan, then include the rest in a hardship-based plan. That assumes that you have an income level low enough to count under the federal definition of financial hardship.

Also, note that to use federal loan forgiveness, you must enroll the loans you want forgiven into a hardship-based plan. Forgiveness only applies to loans you include in that program. You also need to certify that you work in a qualified public service position during the 10 years of repayment.

Your ultimate goal is to achieve highest total monthly payment you can comfortably afford on your budget. This will pay off student loan debt as quickly as possible and minimize total interest charges. If you can’t figure this out on your own or you’re unsure, get professional help.

A Final Note on How to Pay Off Student Loan Debt Fast

In general, private student loan consolidation is the fastest way to pay off student loan debt. At minimum, federal repayment plans take 10 years. But with a private consolidation loan, you can set a term that works for your budget and goals. So, if you want to pay off student loan debt in five years, you set a 60-payment term; as long as you can afford the payments, this will get you out of debt in half the time.

It’s worth noting that you can usually make larger payments or extra payments on student loans without early repayment penalties. This means you can direct extra cash, such as a tax refund, to your student debt. Extra payments and larger payments mean you pay off principal faster, so you can be out of debt that much sooner. Making the largest payments possible will pay off student loan debt as fast as possible.

Article last modified on February 28, 2022. Published by Debt.com, LLC