Graduate school is one of the biggest investments of your life, and graduate student loan debt can linger for decades. Many graduates leave school with upward of $70,000 in debt, according to the latest data from the National Center for Education Statistics, so it’s critical to create a plan to pay off such a large sum. There are several ways to do this, from switching to a different repayment plan to finding employee assistance programs.
Best ways to pay off graduate school loans
There’s no single solution to paying off graduate school loans — the right strategy for you depends on your loan type and finances. However, as you begin to pay off your graduate school debt, the strategies below are worth considering.
1. Find a different repayment plan
If you take out federal student loans, you’ll be automatically put on the Standard Repayment Plan, which lasts 10 years. However, you’re not locked into this plan. Income-driven repayment plans are one option; these plans cap payments at a percentage of your discretionary income, usually 10 to 20 percent, which you’ll pay over a period of 20 to 25 years before your remaining balance is forgiven. With private student loans, you can get a longer term by refinancing your loans.
Because student loans don’t have prepayment penalties, you could also take the opposite approach and choose to repay your loans over a shorter period of time by doubling up on payments.
“It’s more than just working with your budget, it’s picking the right plan that results in the best long-term savings,” says Travis Hornsby of Student Loan Planner. “You could decide to refinance to a five-year term and pay your loans back in five years. While that might work with your budget, it might prohibit other things like taking a vacation, buying a house or starting a family.”
Pros: You can customize your repayment term to fit your budget and, in some cases, see some of your balance forgiven.
Cons: Longer repayment plans cause you to pay much more in interest and keep you in debt longer, while shorter repayment plans increase your monthly payment.
Best for: Graduates with moderate-to-low incomes.
2. Consider refinancing to a lower interest rate
If you took out your student loans when interest rates were high, refinancing into a lower interest rate can help you save money and pay off your loans faster, since more of your payment will be going toward the principal.
You can refinance both federal and private student loans. But because you can refinance only through private lenders, think carefully before refinancing your federal student loans — by doing so, you’ll lose access to income-driven repayment plans, loan forgiveness options and an abundance of deferment and forbearance programs.
If you do choose to refinance your student loans, it’s important to compare rates from a few lenders before applying. Your credit score and finances determine what rate you receive, and each lender weighs these factors differently. If you don’t know where to start, you can check out multiple rates from different lenders by filling out a single form on a loan comparison website, such as Credible.
Pros: Refinancing loans can save you thousands of dollars on interest and potentially lower your monthly payment.
Cons: Refinancing federal loans takes away federal benefits, and interest rates and terms are based on your credit score.
Best for: Individuals with excellent credit scores and a stable source of income who have private student loans.
3. Figure out ways to earn more money
Side hustles are becoming much more common, especially among younger generations. A Bankrate survey found that about a third of working Americans have a side gig outside of their primary job and use the money for a variety of purposes, such as spending, paying for regular living expenses or saving.
For someone with a large graduate loan debt balance, getting a side gig could be a great way to knock out that debt faster. Even if you earn an extra $100 per month and put it toward your student loan debt, you’ll eliminate $1,200 per year from your balance.
Pros: Working a side gig doing something you enjoy can help you chip away at your student loan balance over time.
Cons: Side hustles on top of a regular job can easily result in burnout, and it can be hard to get a project off of the ground.
Best for: People willing to be flexible and put in extra hours for extra cash.
4. Seek out state assistance
Many states offer some type of student loan assistance. These programs are often used as incentives to retain or attract talent in certain fields of work.
For example, Kansas offers student loan forgiveness up to $15,000 over five years for residents living in “Rural Opportunity Zones”; California offers loan forgiveness for doctors, health professionals and dentists.
Pros: Thousands of dollars in assistance are available to put toward your loan balance.
Cons: Some state assistance programs require you to live in a certain part of the state or work in a specific occupation. Additionally, these programs aren’t intended to forgive your loans in full.
Best for: Those willing to relocate and establish residency or provide professional services for a continuous period of time.
5. Look into employee assistance programs
Some companies offer to help employees with their education expenses as part of their benefits package. This can be in the form of either tuition reimbursement or an allowance to pay off your student loans.
However, many companies institute an annual cap of $5,250, since that is the maximum contribution that can be tax-free for the employer and the employee. Additionally, there may be some conditions attached, like staying with the company for a specified amount of time and meeting certain performance metrics. Nonetheless, it’s a great option to tackle your student debt faster without dipping into your funds.
Pros: You can shave off your debt faster without having to invest anything out of pocket.
Cons: Many companies will contribute only $5,250 a year, and you have to commit to staying with your employer for a specified amount of time.
Best for: Graduates with both federal and private student loans who are planning to stay with their employer for the next five years.
6. Learn how to budget
Your income and expenses will evolve over time, but creating a basic budget is critical for learning how to manage your money. Student loans take up a relatively fixed spot in your budget, so look at your other expenses to see where you can cut back.
Start by writing down your spending and expenses in a notebook or a spreadsheet. You can also use a budgeting app if you don’t feel like crunching the numbers yourself.
After seeing it all in one place, it’ll be easier to determine what your discretionary spending should be after accounting for your fixed expenses. You can also keep in mind the 50/30/20 rule, which dictates that 50 percent of your take-home pay goes toward needs (housing, groceries, utilities, loan payments), 30 percent goes toward wants (hobbies, vacations, gym memberships) and 20 percent goes toward savings (emergency fund, investments).
Hornsby recommends limiting your housing and transportation costs as much as possible, as those will take up the biggest room in your budget. “If you want to have extra money to put toward your loans, just be cautious on spending on cars and houses,” he says. For instance, you may choose to buy a used car rather than a new one, move to a less-expensive part of town or live with roommates.
Pros: Creating a budget gives you a clearer picture of where your money is going each month and helps you find ways to funnel additional money to your student loans.
Cons: It may take time to figure out exactly where you should be allocating funds, especially if you haven’t operated on a budget before.
Best for: Anyone who wants to track and manage their cash flow.
The bottom line
It’s easy to become overwhelmed by graduate school student loans, but there are plenty of strategies to start paying them off. You may even combine a few methods to get the most value out of your payments. Before starting your repayment, take a look at your finances and use student loan calculators to crunch the numbers based on current and future interest rates and repayment terms.