When you’re facing $100,000 in student loan debt, you may wonder if you’ll ever be able to pay it all off. To make it even more daunting, you’re probably facing tens of thousands of dollars in interest charges.
Fortunately, there are a number of strategies to make your payments manageable and more affordable. Learn how to pay off 100K in student loans and find the repayment option that’s best for you.
Understanding Your $100,000 Student Loan Debt
According to the Education Data Initiative, 8% of borrowers owe more than $100,000 in student loan debt. As the interest continues to build on the loan, you’ll owe even more than $100,000 over time. That’s what makes living with student loan debt so challenging.
For example, if you have a $100,000 loan balance with a 7% interest rate and a 10-year repayment term, you’ll owe $39,330 in interest payments over the life of the loan. So your $100,000 loan becomes $139,330, with monthly payments of $1,161.
The longer you take to pay off your $100,000 in student loans, the more you’ll pay. But of course, your payments also need to fit into your budget each month, along with your rent, utilities, and other necessities.
Breaking Down Federal and Private Loans
There are key differences between federal and private student loans that can affect how you repay what you owe. Federal student loans come from the Department of Education, while private student loans are offered by private institutions like banks, credit unions, and online lenders.
Federal student loans have fixed interest rates, flexible repayment options, and federal protections and programs such as income-driven repayment plans and loan forgiveness.
Private student loans are often used to help fill the gap that federal loans, scholarships, and other financial aid doesn’t cover. These loans may have fixed or variable interest rates, and they often require a cosigner. Private student loans don’t offer the same flexible repayment options or federal programs that federal student loans do.
Check to see what kinds of loans you have. You may have federal student loans only or a combination of federal and private student loans. Knowing exactly what your loans are will help you determine the best way to tackle your debt.
Recommended: Student Loan Debt Guide
Calculating Interest and Total Repayment Costs
Once you’ve identified the kinds of student loans you have, calculate how much your total repayment cost, including interest, will be based on the loan term of your current repayment plan. With federal student loans, unless you pick another plan, you will automatically be placed on the 10-year Standard Plan.
You can check with your student loan service provider to get your total student loan costs. You can also use a student loan calculator or calculate it yourself.
To determine how much the monthly simple interest on your loan will be, you first need to calculate the daily interest on the loan. To do this, divide the loan’s interest rate by 365 and multiply that number by the principal amount. Then multiply the resulting number by the number of days in your billing cycle.
On a $100,000 loan with an interest rate of 6.00% and a repayment term of 10 years, your monthly payment would be $1,110.21, and $276.88 of that would be interest.
That adds up to $33,224.60 in interest over the life of the loan, giving you a total loan repayment cost of $133,224.60.
Creating a Budget and Repayment Plan
To start paying off $100,000 in student loans, it helps to create a budget. You might consider using a popular budgeting technique such as the 50/30/20 rule, which allocates 50% of your income toward needs (housing, utilities, bills), 30% toward wants (nonessential items like dining out and entertainment), and 20% toward savings and investments. You may decide to forgo a big chunk of the wants and direct that extra money into paying off your student loans.
Once you’ve set up a budget, evaluate your loan repayment options. The Standard Plan with its 10-year repayment term might not be the best choice for you, especially if the monthly payments are too steep. Instead, you may want to consider income-driven repayment (IDR) plans. These plans are designed for borrowers who have a high debt relative to their income.
With income-driven repayment, your monthly payment amount is based on your income and family size. Your loan term will be approximately twice as long as on the Standard Plan. However, the longer loan term means you will pay more interest over time.
Exploring Loan Consolidation and Refinancing
Student loan consolidation and refinancing are two other possible options to help manage student loan debt.
Consolidating Federal Student Loans
When you have multiple federal student loans, you can consolidate them into a new federal Direct Consolidation Loan. With this loan, you can choose more flexible loan terms, like a longer time to repay the loan. You’ll also simplify your payments. Instead of making several different loan payments, with consolidation you make just one payment.
Refinancing with Private Lenders
When you refinance your student loans, you replace your current loans with a new loan from a private lender. Ideally, you might be able to qualify for better rates and terms.
It’s possible to refinance private student loans, federal student loans, or a combination of both types. However, if you refinance your federal student loans into private loans, you’ll lose access to the federal programs and protections those loans offer, such as deferment, forbearance, forgiveness, and income-driven repayment plans.
Recommended: Private Student Loans Guide
Weighing the Pros and Cons
There are benefits and drawbacks to refinancing and consolidating your student loans. Here are the pros and cons of each option.
Pros of federal student loan consolidation:
• Simplified payments.You’ll have a single monthly loan payment, rather than multiple payments.
• Lower monthly payment. You might be able to get a lower monthly payment, but that means you’ll make more payments over a longer term.
• Longer loan term. Consolidation gives you the flexibility to choose a lengthier loan term.
Cons of federal student loan consolidation:
• Consolidation may result in more payments and interest over time if you extend your loan term.
• With consolidation you might lose certain benefits such as interest rate discounts, principal rebates, and loan cancellation benefits.
• A longer loan term could mean you’ll be making payments for years longer than your original term.
• Consolidating your loans might cause you to lose credit for payments made toward income-driven repayment plan forgiveness.
Refinancing student loans also has advantages and disadvantages.
Pros of student loan refinancing:
• You may get a lower interest rate. If you qualify for a lower interest rate, you could save money. A student loan refinancing calculator can help you determine what you might save.
• You might qualify for better terms. You may be able to extend the length of your loan, which could lower your monthly payment.
• Simplified payments. With refinancing, you only have one payment each month, rather than multiple loan payments.
Cons of student loan refinancing:
• You’ll lose federal protections and programs. When you refinance your student loans with a private lender, you lose all federal benefits and protections, including deferment and forbearance.
• No access to income-driven repayment plans. IDR plans are another thing you give up with refinancing.
Utilizing Repayment Assistance Programs
Loan repayment assistance programs (LRAPs) are another resource that could help you manage your student debt. States, employers, and other organizations may offer these programs that can help you repay your student loans.
Do some research to find out if there are any LRAPs you might qualify for — for instance, some are offered to college grads that work in public service fields — and check with your employer to find out if they offer such a program.
Strategies for Accelerating Loan Repayment
There are several different strategies for repaying your student loans faster, which could help you save money over the long term. Here are some options to consider.
• Start paying off your loans sooner. If possible, make student loan payments while you’re still in school or during the six-month grace period after graduation. If you can’t afford to make full payments, pay off enough to cover the interest each month and keep it from accruing.
• Sign up for automatic payments. Making your loan payments automatic will ensure that they’re made on time, and prevent any late penalty charges. Plus, you may get an interest rate deduction for enrolling in an automatic payment program.
• Pay a little extra each month. Paying more than the minimum on your loan can help you pay off the loan faster. It can also reduce the amount of interest you’ll pay.
• Put any extra money toward your loans. Use a windfall, a tax refund, or birthday money from family members to help pay off your student loan.
• Consider student loan refinancing. With refinancing you may be able to qualify for a lower interest rate or a shorter loan term.
The Takeaway
A student loan debt of $100,000 might seem daunting, but there are ways to repay your loans that might also save you money or allow you to pay off your loans faster. Options include income-driven repayment plans, putting additional money toward your loan payments each month, loan consolidation, or student loan refinancing. Weigh the pros and cons of the different options to decide which one is best for you.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
How long will it take to pay off 100K in student loans?
The length of time it will take to pay off $100K in student loans depends on a variety of factors, including the repayment plan you choose and whether or not you regularly make extra payments toward your student loans each month. For instance, if you’re on the Standard Repayment plan for federal student loans and you don’t make additional payments on your loans, it will typically take you 10 years to pay off your loans. If you opt for an income-driven repayment plan, your loan repayment term will generally be 20 years or longer.
Can I settle student loan debt for less than I owe?
It’s difficult to settle student loan debt for less than you owe. However, if you find yourself in very dire circumstances and your loans are in default, you may be able to get a student loan settlement. That means you pay off your student loans for less than you owe typically in one lump sum, depending on the settlement terms. Your lender must be willing to work with you in order to qualify for a student loan settlement. Check with your loan servicer for more information.
What happens if I can’t make my student loan payments?
If you can’t make your student loan payments, reach out to your lender or loan servicer right away to let them know you’re struggling. They will explain the options you have, which might include income-driven repayment plans, forbearance, or deferment. It’s important to reach out to the lender or loan servicer immediately because if you miss payments, they may report the missed payments to the credit reporting agencies, which can hurt your credit.
Photo credit: iStock/damircudic
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