Reader Mailbag: Paying Back Student Loans

Reader Mailbag

Guess what happens when we get questions from readers? We answer them! So if you have your own question, click here and shoot it off to us. We’ll do our best to get back to you and give you an answer that isn’t totally incorrect.

Johnny and I graduated from college at the same time, and as we looked toward post-student life, the possibilities seemed endless. The year before we graduated our combined income was $14k. With our full-time schmancy-pants (not really) jobs we landed after graduation, we were set to make three or four times that as a couple. And boy oh boy were we stoked. But we also had $20k in school loans staring us in the face, interest and all. We were in a position where we could live frugally and beat down the Debt Monster quickly. But despite our decent cash flow and only $20k in loans, we still experienced bumps in the debt-payoff road. Others’ experiences with paying off loans will be different than our own… different cash flow, different loan amount, different expenses. But all debtors will experience their own bumps in the road. We recently got some awesome questions from an OFB reader that address this very topic.


I’m a new reader (subscriber!) and really love your blog. I would love to see a post about paying off student loans, particularly for loan totals that are high, in the 5- (or 6-) figure range. Specifically, what are your thoughts on paying it off over time (i.e., the standard 20-year repayment plan) as opposed to paying it off more quickly? Pros and cons? How might the decision change based on how tight your budget is? And I’d also be interested in how you suggest prioritizing student loan repayment vs. growing savings.

Sorry if you’ve already posted on this and I just missed it. And congrats on Baby Girl!



Disclaimer: As we do with every post, we’re going to speak from our own experience, which doesn’t necessarily mean it’s right. But it worked for us. So basically, don’t try this at home, kids. But if you do, wear a helmet.

Paying Off Over Time vs. Quickly

Johnny and I chose to pay down our loans aggressively for a few reasons. First, it was possible. Second, the amount of money we saved in interest by paying our loans off quickly made it worth it to us. And most importantly, we wanted to pay off the psychological burden that comes with having debt. That was the clincher for us.

That said, we have friends who have incurred six-figure student loan debt, and they’ve decided to pay it off slowly for a few reasons. First, they’re able to live a more comfortable lifestyle. Because of how much school loan debt they have, the minimum payment toward their loans is still $1000/month. So if they paid more, it would definitely constrict their lifestyle. They make a good amount of money now and are on track to continue making a very sizable income. So living a more comfortable lifestyle now is worth paying close to 3x the principal of their loans by the end of it. Totally their prerogative. Prerogative is a weird word.

Our final two cents: You never know what tomorrow holds. So though you may have a great job now, nothing is guaranteed. Sometimes I think the logic is, “Even if I can’t pay my loans for some reason, it’s not like they can take my education from me.” That’s true for now… until the government creates a Men in Black education-erasing brain gun. But more importantly, if you ever did have to file bankruptcy, school loans are one of the only forms of debt that are not forgiven. Yikes. Paying off your loans quickly while you’re able is definitely worth considering.

Paying Off On a Tight Budget

Johnny and I had decent incomes while we were paying off our school loans. And since our debt wasn’t massive, our tight budget was self-inflicted. The only way to make your budget less tight is by either spending less or making more money. For us, we mostly just cut back. But once you’ve exhausted both of those options, then it is what it is. You can only do your best and take it from there.

When we were established with a location and job where we thought we’d stay a while, we maximized our debt repayment. It wasn’t easy and it definitely made us stretch. We found the most budget savings by cutting back on rent (finding the cheapest place we could, without constantly walking through active crime scenes), eating out, and discretionary expenses (clothing, entertainment, pillows). But those sacrifices still serve as a nasty reminder why we’ll do whatever we can to avoid another encounter with the Debt Monster.

Our final two cents: Johnny and I still found (inexpensive) ways to have fun while we were in debt. Otherwise, the process would have been miserable and unsustainable.

Paying Off vs. Saving

Prior to graduation and paying off our debt, we made sure we had a one-month emergency fund in place. While we paid off our loans, we added to that emergency fund (or savings in general) every month. So not every single dime of unspent money went to our debt. For us the peace of mind of being able to add a little cushion to our savings each month was worth the little interest we incurred by paying a little bit less on our loans each month.

Our final two cents: Depending on what was going on in our lives, our ratio of loan repayment to savings would change. Right before we moved to NYC, we paid significantly less on our loans and saved more to prepare for the move and the need for cash (e.g., $1000 toward savings, $200 toward loans). So there may be times when you’ll have to be flexible in order to fit an unexpected change/hurdle in your life.

So that’s our take on paying off student loans. Whew! You can now check “read a novel” off today’s to-do list… if you need the shortened version, I said that paying off loans is good, but use some money to buy ice cream. The end.

What have been the greatest hurdles you’ve encountered while paying off your debt? What advice would you add?

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  • Reply Mike Craig April 8, 2013 at 7:24 am

    Student debt is one of our nation’s greatest problems. I love the fact that you are working on multiple goals at the same time. The emergency saving fund is being neglected by too many. I applaud you for your prudent approach. There was a time in this country when prudence and self-reliance was celebrated as a virtue, your hard work is bringing it back.

    • Reply Joanna April 8, 2013 at 9:46 pm

      Thanks, Mike! I agree… student debt is a big problem in our country right now. I’m not sure what the solution is, but it’d be nice if tuition weren’t so expensive!

  • Reply Marty April 8, 2013 at 7:35 am

    What are your thoughts on deciding which student loan to pay off first? I think Dave Ramsey recommends paying off the one with the smallest balance to build momentum. While it seems others suggest paying off the ones with the highest interest rate. I have around 25k in student loans and I have been paying them for 4 years. I have found that I can deduct the student loan interest on my taxes, which gives me a little solace that I am paying all that interest.

    • Reply Joanna April 8, 2013 at 9:52 pm

      Hey Marty! Johnny and I used Dave Ramsey’s debt snowball method when we were paying off our loans. Psychologically, that method kept us very motivated. And staying motivated is key when it comes to paying off debt. That said, other people choose to pay off the loan with the highest interest, and that works for them.

      Being able to deduct the loan interest on your taxes is a huge plus… anything to lessen the blow! Good luck as you continue paying them down!

  • Reply Lisa D. April 8, 2013 at 7:48 am

    I love your advice! I ask myself where my money should go all the time! Savings? Student Loans? Retirement? New shoes? Ok just kidding about the shoes (sort of). My approach will be to try to put money into all three so that one day I can buy I house, pay off my student loans, and waaaay down the road -retire. I often wonder if I’m doing it the right way, and should instead prioritize one of these more than another, but I figure if my money ends up in any of those three places it’s a good thing. Although once interest kicks in on my subsidized loans I may decide to pay those down a bit more aggressively. Now, I just have to really focus on spending less and more wisely.

    • Reply Joanna April 8, 2013 at 9:58 pm

      Everyone’s situation is different, and you have to do what’s best for you, Lisa. It sounds like you’ve got it figured out with putting money toward savings, loans, and retirement. You gotta give each of those categories attention, and you’re doing just that!

      And I think every budget deserves a little money toward that fourth category, too! 😉

  • Reply Michelle April 8, 2013 at 8:22 am

    I’m currently working on paying off my student loan debt. That is the main reason why I am working so hard towards increasing my extra income every month. Extra income makes it so much easier to pay it off quickly! However, if my student loans were at a lower rate (almost all of them are at 6.8%) then I think I would probably pay them off slower as I have some friends who have rates of below 2%.

    • Reply Joanna April 8, 2013 at 10:01 pm

      I’ve never seen someone maximize their extra income like you, Michelle, so kudos for that. What an awesome way to pay your loans down quickly.

      And I feel ya on the interest rate… the interest rate on my loans was over 6% as well! Ugh!

  • Reply Emily @ evolvingPF April 8, 2013 at 8:23 am

    I would let the interest rate (vs. my risk tolerance) guide me in how aggressively to save vs. pay off debt. But either way I think you should live like you have a massive amount of debt! 20 years seems way too long to me to be in debt unless the interest rate is practically 0%.

    • Reply Joanna April 8, 2013 at 10:05 pm

      Interest rate is definitely something to consider. And everyone has to figure out what their priorities are. For us, our interest rate wasn’t a huge factor for paying off our loans quickly…. we just wanted the burden of debt gone!

  • Reply Deb @ Dietitian Debbie Dishes April 8, 2013 at 9:08 am

    Thanks so much for this advice! My student loan debt is pretty high (like M), so I was always torn between paying that off faster and being able to save a few dollars for emergencies. It’s hard when the monthly payment is already high! I figured I would tackle my smaller, higher interest debts (ie. my car!) first and then set aside more to pay off my loans. I have to remind myself to take it one day/month at a time, there’s no way to tackle this big “debt monster” all at once!

    • Reply Joanna April 8, 2013 at 10:13 pm

      You’ve got the perfect mindset, Deb! And I think you’ve got it figured out with paying off your higher interest debt first! Just establishing good saving and spending habits and having a set payoff plan can alleviate a lot of the stress of debt. As long as you’re making progress and heading in the right direction, you’re doing great!

  • Reply Jen April 8, 2013 at 9:20 am

    My debt free-nnivesary is coming up: April 22nd marks 3 years! I got out of grad school with about $21K in debt and paid it off in 20 months. Hardest part was saying no to friends and nights out but it was worth it when I saw the student loan principal hit ZERO (I just came across that print out last weekend.. I should frame it haha). I let myself have fun too (stood in a couple of weddings, took a few trips) and hit a few bumps in the road (car repairs mostly). I’m a Dave Ramsey follower and listened to his radio show every day on the way home from work to stay motivated. I got pretty intense and didn’t think so much about the numbers (save vs pay off, low interest vs high interest) – I just did it. Hands down, best decision I ever made. I save almost as much each month as I used to put towards payments. Next goal: new to me used car to be paid for with cash.
    Relatively new subscriber. LOVE your blog. Keep up the good work!

    • Reply Joanna April 8, 2013 at 10:21 pm

      This could have been our debt story, Jen! Johnny and I both used to listen to Dave Ramsey at work. We paid off our loans in a similar timeline. And we used to always have to say no to friends! But I agree… so worth it! We just got our “new to us” car a few months ago, and I’m sure you’ll love it as much as we did when we saw how disappointed the car dealer was that we were paying cash. 😀

      Thanks for commenting and sharing your story! And congrats on being debt free.

  • Reply Chris April 8, 2013 at 10:47 am

    Thanks for the sound advice.

    Student debt is our nation’s silent financial killer. I worry about people graduating today but more importantly what kids will face in about 15-20 years. I really hope the government takes a serious look at how student loans are structured. Something needs to be done if we want to keep a highly skilled workforce in tact for the future.

    • Reply Joanna April 8, 2013 at 10:28 pm

      It’s worrisome how much debt most students have to incur in order to graduate from college. I just wish tuition wasn’t so outrageously expensive. Something’s gotta give at some point.

      We’re already getting donation requests from our alma mater, and Johnny and I are both like, “Are you kidding me???” Maybe in a few years, but for now the wounds of tuition are too fresh!

  • Reply Rob April 8, 2013 at 10:57 am

    Regarding debt, I’m with you guys. We’ve been debt free for some years now. After graduation and newly married, our strategy was thus:

    (1) set up an emergency fund – no point paying down debt if you don’t have a temporary “safety cushion” to fall back on – at all times.

    (2) we then equally set money aside to pay down mortgage debt as well as save for retirement – paying down debt resulted in guaranteed interest payment savings (better than any other investment) and saving for retirement (in safe investments) started the compounding savings ball rolling, along with the tax free aspect of it.

    We paid our highest interest debts first as that resulted in max interest payment savings, plus we could psychologically handle that approach. Ramsey’s approach of paying the lowest interest rate debts first (in order to knock them off quicker) is also good if you need that mental push to keep paying off debt without becoming discouraged.

    The name of the game: pay down debt, save as much on interest payments as possible (within reason, of course), and then (once debt free) invest wisely to then make your money work harder and gain passive income for you. It can be done but it does take sacrifice, patience, and determination. Setting both short term as well as long term goals is how we did it. I think you guys are on the right track.

    • Reply Joanna April 8, 2013 at 10:34 pm

      I always love hearing your take on subjects, Rob, because you’ve been there and done it already and are now getting to see the fruits of your labor. Right now we’re trying our best, *hoping* the outcome is a good one.

      And it sounds like your method of paying off debt was a good one. You can’t ignore any one of the trifecta: savings, retirement, debt. Now that Johnny and I have paid off our debt, we’ve gotta start looking toward investing! That’s a whole new road, and we’ve got a lot to learn in that area!

      • Reply Rob April 8, 2013 at 11:06 pm

        Joanna, I have no doubt that you and Johnny are on the right road to success since you guys remind me so much of my wife and I when we were first starting out together. Common sense living and having this blog to interact with your readers for mutual sharing of ideas on solid financial thinking can’t help but ensure that outcome, I’m sure.

  • Reply Johnny Moneyseed April 8, 2013 at 11:08 am

    It really makes me wonder if college is even worth it anymore. If you know that you’lll make at least $10k more than someone that doesn’t have college, but you’re paying $10k/year in student loans, then who wins? Especially when you don’t start your career until you’re at least 21 or so, whereas the non-college grad could jump right into the workforce and start earning. Not having a college degree isn’t what it used to be.

    • Reply Joanna April 8, 2013 at 10:37 pm

      I do think as the cost of tuition continues to rise, the benefits of college will be questioned more and more. It’s too bad because college is such a great time to slowly make the transition to adulthood and kind of see what real life with responsibility is like! It will be interesting to see what younger generations choose to do and if college continues to be worth it to them.

    • Reply Linda April 10, 2013 at 4:41 am

      I wonder about this as well… especially when you can pick up some very useful skills in a trade school for a fraction of the price, and earn a decent salary in half the time?

      And even worse – once you are earning the big bucks from your expensive education, you’re surrounded by rich colleagues throwing money away, and are in the trap of spending it as fast as you’re making it.

      End result = huge student loan, work burn-out, trapped in the rat race until retirement, made obsolete/redundant by the next wave of technology coming around the corner. Scary.

      • Reply Johnny April 11, 2013 at 1:01 am

        Scary indeed. I think there’s actually some good movement and discussion happening around the country right now, so hopefully we see an emphasis placed on trade skills again, as well as innovative means of teaching like any number of the online coding schools available.

  • Reply The Norwegian Girl April 8, 2013 at 12:04 pm

    I´m still a student, so I`m not exactly sure what to do when I start paying down the debt. Perhaps save up extra money and pay off a certain amount during the grazing period, and then pay a bit extra than what`s expected. Really, it`s difficult to say. Depends on what kind of job I`ve got.

    • Reply debtperception April 8, 2013 at 3:25 pm

      If you can afford to, make payments on the interest while you’re in school. After your grace period is up and you enter repayment any unpaid interest will capitalize.

    • Reply Joanna April 8, 2013 at 10:41 pm

      There’s a lot of factors to consider when coming up with a framework for paying off your loans (how much your loan is for, what your post-graduate salary is, what your other expenses are, etc.). But being aware (which it sounds like you are!) and coming up with a plan will help you more than almost anything!

  • Reply Rachel April 8, 2013 at 12:05 pm

    I have about 80,000 in student loans to pay off (I graduated 2 years ago). I’ve been paying the minimum amount on a few of them and the full amount on others (ones that are required and cannot be put off ). I’m paying lower on a few of mine/deferring them because I simply don’t make enough of a salary to be paying the full amount. It would be about $900 a month just in student loans- not including rent, food, car payments, etc. I know that I’m racking up interest, but my take on it is that in 5-10 years I will hopefully have a higher salary that paying the extra amount won’t be as hard as it is now. Great post- it’s great to hear I’m not alone!

    • Reply debtperception April 8, 2013 at 3:27 pm

      Have you looked into repayment options like IBR or ICR for your federal loans vs. deferment?

      • Reply Rachel April 8, 2013 at 3:29 pm

        Yes, I’m doing IBR now for 3 of my loans (same lender)

    • Reply Joanna April 8, 2013 at 10:51 pm

      It sounds like you’re doing all that you can do right now, Rachel, which is all you can expect from yourself! Without our combined salaries out of school, there’s no way we could have paid down our school loans as aggressively as we did.

      Just keep adjusting your payoff plan as your salary changes, and keep on keepin’ on! And make sure to enjoy life a little in the meantime. 🙂

  • Reply My Financial Independence Journey April 8, 2013 at 1:33 pm

    I think it all comes down to what else you could be doing with the money. If you need to build an emergency fund or can invest the money at a higher rate of return than you debt’s interest rate, you are best served by paying off the standard amount each money. Otherwise, you may want to consider a more accelerated debt payoff schedule.

    • Reply Joanna April 8, 2013 at 11:06 pm

      Yup. You just gotta decide what’s most important to you and what works best in your personal situation. Our interest rate was pretty high, but even if it hadn’t been, I think we still would have paid off our loans aggressively. But our loans weren’t as significant as others’ are. For us it was all about getting the burden of the Debt Monster off our backs.

  • Reply Chris April 8, 2013 at 3:20 pm

    I was fortunate enough to get through without student loans, but my ex has $25k or so. She hasn’t been able to find a job in her field so she’s not making much money (minimum wage – part time) so she is able to file for a forbearance on her loans. The forbearance allows her to put off paying back the loans while she isn’t making much money. So if you’re aggressively paying on your loans and you somehow lose your job I believe you are able to file for forbearance until you start getting income again. There is also something you can file for that is income-based minimum payments so you can pay like $50 or $100 a month instead of $300.

    That being said, I think student loans are just destroying people’s lives. It’s depressing to watch some of my friends struggle for dear life against finding a job that pays better than $9/hour and pay off $20k-$30k in loans.

    • Reply debtperception April 8, 2013 at 3:31 pm

      I suggest getting under the Income Based Repayment plan vs using up your forbearance (I think it’s 3 years max). I’m under IBR and I currently pay $0 while I’m unemployed and based on the IBR calculators out there, I’d have to make about $22,300 before my payments increase to $10 a month. This will allow me to focus on paying off my private student loans that have higher interest rates and a co-signer.

      • Reply Chris April 8, 2013 at 4:14 pm

        I’ll pass it along! I’m almost positive she doesn’t know that. Thanks!

    • Reply Joanna April 8, 2013 at 11:12 pm

      It sounds like debtperception has some good words of advice! I wasn’t aware of IBR before reading these comments.

      And I totally agree with you, Chris. I mean, no one forced us to go to college and take out loans, but we were so young when we did it that I don’t think we realized the implications at the time. Here’s to hoping the economy shapes up and more people can graduate with a job that has a decent salary.

  • Reply Danielle @ Truffles n' Treadmills April 8, 2013 at 5:13 pm

    This is going to come in handy especially when I graduate in a few years!

    • Reply debtperception April 8, 2013 at 5:59 pm

      If you’re still in school try to pay as much of the interest as you can while you’re still attending and it will save you from so much capitalized interest once you enter repayment!

    • Reply Joanna April 8, 2013 at 11:14 pm

      If you have subsidized loans, they shouldn’t start accruing interest until after you graduate. But the unsubsidized ones start collecting immediately, so if you’re in that situation, debtperception’s right!

      And it’s all about being aware and having a plan! If you can do that come graduation, you’ll be fine!

  • Reply Becky @ RunFunDone April 8, 2013 at 8:32 pm

    I definitely think paying it off more quickly to reduce the amount you pay out to interest over time is the way to go!…Except that I’m one of those crazies with the 6-digit student loans. It is our only debt, but it’s a big one! We are actually doing income-based repayments, with the plan to have the loans forgiven after 10 years for Public Service. It’s a little bit of a risky plan, because if I end up in a situation where I cannot work for the government or the non-profit, I’ll have all the extra interest built up from choosing to do income-based repayments right now. It’s a bit scary!

    • Reply Joanna April 8, 2013 at 11:28 pm

      That’d be awesome if your loans could be forgiven! I think any option comes with a bit of risk. And while your method may have a bit higher risk than others, it also has the possibility of an incredible outcome!

  • Reply Linda April 10, 2013 at 4:38 am

    Excellent post, I love your writing style by the way Joanna!

    I was born with a silver spoon in my mouth 😉 (College bills paid by Grandad) I didn’t have much allowance, so I spent a couple of afternoons every week and most Sundays working as a cashier at a grocery store on the side. Fortunately I decided to attend the local college and lived with my folks, probably much to their relief – made studying much cheaper!

    Great advice about paying off student loans – I can’t imagine a 6 figure student loan – yikes!

    • Reply Johnny April 11, 2013 at 1:03 am

      Ain’t no shame in admitting that help was received. Everyone’s background is different which is what makes the different perspectives on topics like this so unique. As much as I wanted a life of independence from my parents, my wallet could have really benefitted by staying at home.

      Thanks for your comment, Linda!

  • Reply Mira April 14, 2013 at 10:39 am

    Wow! I really admire the approach you’ve done in paying off your student loans and having savings on the side. That was an achievement! I’ve been haunted by the word “savings” since the start of the year but I unfortunately somehow can’t do it all by myself. I think I really need to work on it now. Thank you for this advice! More power to you both.

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