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You won’t be making payments forever. Promise.

But we know it feels like it.

Whether you’re 22, 29, or 36, you probably have student loans from higher education you pursued.

The total dollar amount might not be pretty. The interest rate might be ugly.

And it is so limiting!! Planning a fun vacation might be stifled by the amount you have to set aside every month for your student loan(s). Splurging on a new couch, fancy mattress, or that pair of designer shoes is challenging with those dollars going out the door from your education. And you might feel like you can’t even think about home ownership – you’ll never have enough income free to put towards a mortgage!

Well, good news: If you’re smart, get started well, and stay the course, you can definitely be a homeowner someday. And go on that snazzy vacation. And buy those shoes. And have enough banked for retirement.

We’ll get you started on reaching those financial flexibility goals.

The First Steps

A goal or two: To make sure you reach your financial goals you first need to visualize what they are! Have you always wanted to buy a historic home and restore it? Have you wanted a pool and a garage? Or an annual vacation overseas? Define your goal – and it can be more than one goal! But also define some priorities as well.

A priority list: work to prioritize your debt. What that means is determine what debt(s) you’re going to pay off first. You can take one of two approaches to this. The first is to plan your payments psychologically: pick the smallest debt you have first, and pay that off. You’ll feel great! Then tackle the next-largest amount, and so on. Or, you can use the logical approach: pick the debt with the highest interest rate. This means you’ll pay more over the life of the loan than a debt with a smaller interest rate. Tackle that larger-interest-rate loan first, and when you have that paid off, take pride in the fact that you saved yourself some cash (maybe even a lot of cash!) over the life of the loan. You can use a snowball debt calculator to help you see how payoffs might work.

A budget and plan: Now that you’ve got your goal, and you’ve got your debt payoff approach, it’s time to actually manage the hands-on portion of paying off debt: your budget. Pinpoint your standing, unchanged expenses: utilities, gas, rent, etc. Now, figure out where the “extras” fall for you – eating out, clothing, entertainment, travel. Next, take that extra and cut it down by a chunk. Here’s the key – you need to be reasonable about it. Yes, you should definitely save and keep paying off that debt. No, you cannot spend the next seven years eating nothing but ramen and never leaving your apartment. Decide on what you most like to splurge on, be frugal about it, and budget that in – say, two nights going out to eat, some coffees, and one outfit a month. Then, take a chunk of that extra money and plan to put it toward your student loan debt. And here’s a tip: track your spending closely. Use a debit card with a preset amount, cash in specified envelopes, or a digital tool such as FOCUS, a digital personal financial management tool available to all AmeriChoice members.

A stubbornness: And here comes the hardest part: staying disciplined. What you spend and don’t spend is in your control, and putting money toward your loans to get them paid off faster means you’ll be able to reach your goals sooner. Keep your eye on that prize.

A proactive approach: While you’re staying focused, you can also be savvy. Take a proactive approach with your student loan debt. Can you reduce interest rates by consolidating or negotiating with your creditor? Find ways to earn extra cash on the side – dog sitting, selling craft items on Etsy, or handyman work might be an option. Even if it’s just a little bit at a time, you can sock away those extra dollars to keep pounding away at that debt. You can even use banking tools such as AmeriChoice’s Save the Change checking account product. Every time you spend, the amount up to the next dollar will be deducted from your checking and put into your savings. Incremental amounts really add up over time!

Understand Your Loans

Now, since you’ve got a plan in place, it’s a very good idea to make sure you fully understand your loan repayment set up. You should be able to view your loan and related information online, or you can call your lending company. We’re detailing the main types of repayment here for you!

Federal Student Loans

If your loan is from the federal government, you have eight repayment options to choose from, a couple of them recently developed to help with heavy student loan debt.  For all the repayment plans, there are limits and additional rules regarding what kinds of loans are eligible to be included. The information below can help you get started, but if you have questions you should review all the details at the Federal Student Aid website.

1. Standard Repayment Plan: This is calculated based on the size of the loan and its rules. It might be most useful if you want to pay your loan off as soon as possible, or if the loan is a small amount to begin with. If you consolidate loans into a standard payment plan, you may lose flexibility to change to a different repayment structure in the future.
2. Graduated Repayment Plan: These follow the same guidelines as the standard payment plan, except the payments are interest-only for the first few years, and then increase in amount every two years.
3. Extended Repayment Plan: This plan provides up to 25 years to repay your loans, with increases to payment amounts every two years, just like the Graduated Repayment Plan.
4. Revised Pay as You Earn Repayment Plan (REPAYE): This caps the monthly payment at 10 percent of your discretionary income (spouse’s income is included) and provides loan forgiveness after 20 years of qualifying payments for undergrad loans, and 25 for graduate loans. You also get interest forgiveness for the first three years, and half of the accruing interest after year three.
5. Pay as You Earn Plan Repayment Plan (PAYE): Also caps your payment at 10 percent of your discretionary income – does not include the spouse’s income. Also includes forgiveness after 20 years of payments. Your monthly payment must be less than what a standard ten-year term payment would otherwise be.
6. Income-based Repayment Plan (IBR): This one has forgiveness for the first three years of any unpaid interest from when the loan was first disbursed, which can be helpful if your income is low. This usually offers a very low payment for borrowers with financial hardship. If you’re not making a full payment each month, you may be forgiven the difference to meet the lowest monthly payment. The payment cannot be more than 15 percent of your adjusted gross income over the poverty line. If you’re married, your spouse’s debt also plays into this equation.
7. Income-Contingent Repayment Plan (ICR): Calculated with one of two formulas, this can account for your income, family size, and a 20 percent multiplier, but does not include your total loan amount. The second calculation uses the loan value, your income, and a different constant multiplier. You are required to pay the lower payment of the two options. Loan forgiveness is also possible with this plan.
8. Income-Sensitive Repayment Plan (ISR): This repayment program only works for those with loans that originated through the Family Federal Education Loan (FFEL) Program, which ended in 2009. It allows borrowers to roll all applicable loans together into a single payment that is scaled to account for both income and family size. For direct loans, the Income Contingent Repayment Plan is most similar.

Private Student Loans

Private student loans don’t have quite as much flexibility with repayment plans, though you can consolidate them to reduce your interest rate if you meet certain criteria.

Repayment types include:

• Immediate Repayment, which means that full payments are expected to be paid as soon as the loan is disbursed, likely while you were still in school.
• Interest-only Repayments, where your monthly payments are equal to the interest accruing each month while you are in school, but then increase following graduation.
• Partial Interest Repayment, which is a flat payment covering only part of what’s owed on interest while you’re in school.
• Full deferment: While you’re still in school, and sometimes for a six-month grace period after that, monthly payments are put on hold and not required by the lender.

If you’re not sure what the best repayment option is for you or if you want to see whether you qualify for another payment plan, most lenders will work with you to find a good fit for managing your student loan debt.

Now that you’re equipped with a goal, a plan, and full understanding of loan repayment terms, take heart: You’ll get there. You will see that loan balance shrink, your net worth increase, and you’ll be able to make a down payment on a house, pay for a car when yours gets worn out, and update your whole wardrobe if you want to.

You can learn more about how to plan to buy a home in the future with our Guide for First Time Homebuyers!