By 
The average student loan borrower owes $37,000. Here is every repayment strategy compared, from income-driven plans to aggressive payoff to forgiveness programs.
The average student loan borrower in the US owes roughly $37,000, according to the Federal Reserve. Total outstanding student loan debt exceeds $1.7 trillion across 43 million borrowers. If you are reading this, there is a good chance you are one of them.
Student loans are not like credit card debt (where the answer is always “pay it off as fast as possible”). Student loans have lower interest rates, potential tax deductions, income-driven repayment options, and forgiveness programs. The optimal strategy depends on your loan type, interest rate, income, career, and financial goals.
Here is every option, with honest guidance on which one fits your situation.
Know your loans first
Before choosing a strategy, understand what you owe:
Federal loans (Direct Subsidized, Direct Unsubsidized, PLUS loans): Fixed interest rates set by Congress. Currently 5.50% (undergraduate) to 8.05% (PLUS) for 2024-2025 loans. Access to income-driven repayment plans, forgiveness programs, and deferment/forbearance. Managed through StudentAid.gov.
Private loans (from banks, credit unions, online lenders): Variable or fixed rates based on your credit. No income-driven plans. No forgiveness. Limited hardship options. Treated like regular consumer debt.
Log in to StudentAid.gov for federal loans and your private lender’s website for private loans. Know each loan’s balance, interest rate, and servicer.
Federal repayment plans
Standard Repayment (10 years)
Fixed monthly payments over 10 years. This is the default plan and the fastest way to pay off federal loans without extra payments.
Monthly payment on $37,000 at 5.5%: roughly $401/month Total interest paid: roughly $11,100 Total paid: roughly $48,100
Best for: Borrowers who can comfortably afford the payment and want to minimize total interest.
SAVE Plan (Saving on a Valuable Education)
The newest income-driven repayment (IDR) plan, replacing REPAYE. Payments are based on income and family size. Note: the SAVE plan has faced legal challenges; check StudentAid.gov for the latest status.
Payment calculation: 5% of discretionary income for undergraduate loans (10% for graduate loans). Discretionary income = AGI minus 225% of the federal poverty guideline.
Example: Single borrower earning $50,000 with undergraduate loans. Discretionary income: $50,000 – $33,975 (225% of 2024 poverty guideline for 1 person) = $16,025. Monthly payment: $16,025 x 5% / 12 = roughly $67/month.
Forgiveness: Remaining balance forgiven after 20 years (undergraduate) or 25 years (graduate). Forgiven amounts may be taxable as income (though currently tax-free through 2025 under the American Rescue Plan).
Interest benefit: If your payment does not cover the monthly interest, the government covers the remaining interest (no negative amortization).
Best for: Lower-income borrowers, borrowers pursuing Public Service Loan Forgiveness, and anyone whose standard payment is unaffordable.
Other income-driven plans
IBR (Income-Based Repayment): 10 to 15% of discretionary income. Forgiveness after 20 to 25 years. PAYE (Pay As You Earn): 10% of discretionary income. Forgiveness after 20 years. ICR (Income-Contingent Repayment): 20% of discretionary income or fixed payment over 12 years (whichever is less). Forgiveness after 25 years.
The SAVE plan is generally the most favorable for most borrowers. Use the Federal Student Aid Loan Simulator to compare plans with your actual loan details.
Public Service Loan Forgiveness (PSLF)
If you work full-time for a qualifying employer (government, nonprofit, 501(c)(3) organizations) and make 120 qualifying payments (10 years) under an IDR plan, the remaining balance is forgiven tax-free.
Requirements:
- Work full-time (30+ hours/week) for a qualifying employer
- Have Direct Loans (consolidate if you have older FFEL loans)
- Be on an income-driven repayment plan
- Make 120 qualifying monthly payments (do not need to be consecutive)
- Submit the PSLF Employment Certification Form annually
The math: A teacher earning $55,000 with $80,000 in student loans on the SAVE plan pays roughly $88/month. After 10 years of payments ($10,560 total), the remaining balance (potentially $70,000+) is forgiven tax-free. Without PSLF, that same borrower would pay $80,000+ over 20 to 25 years.
Best for: Anyone working in government, education, healthcare nonprofits, or other qualifying public service roles. If you qualify, PSLF is almost always the optimal strategy.
Aggressive payoff strategies
The avalanche method (mathematically optimal)
List all student loans by interest rate, highest to lowest. Make minimum payments on all loans except the highest-rate loan. Throw every extra dollar at the highest-rate loan until it is gone. Then move to the next highest.
This minimizes total interest paid. The same approach works for credit card debt.
The snowball method (psychologically motivating)
List all loans by balance, smallest to largest. Pay minimums on everything except the smallest loan. Pay off the smallest first for a quick win. The psychological momentum of eliminating loans keeps you motivated.
Making extra payments
Any extra payment beyond your minimum goes directly to principal (by law, servicers must apply extra payments to principal after interest). Making even $100/month in extra payments on a $37,000 loan at 5.5% saves roughly $3,200 in interest and pays off the loan 3 years early.
Where to find extra money:
- Automate savings from raises and apply to loans
- Redirect side hustle income to loan payments
- Apply tax refunds to the principal
- Cut one category (dining out, subscriptions) and redirect to loans
Refinancing
Refinancing replaces one or more existing loans with a new private loan at a lower interest rate.
When refinancing makes sense:
- Your credit score has improved significantly since taking the original loans (now 720+)
- Your income has increased
- Current market rates are lower than your loan rates
- You have private loans at high rates
When NOT to refinance:
- You have federal loans and might need income-driven repayment or forgiveness
- You work in public service (refinancing disqualifies you from PSLF)
- You might need deferment or forbearance in the future
Critical warning: Refinancing federal loans into private loans permanently eliminates access to federal protections: income-driven plans, forgiveness, deferment, and forbearance. Only refinance federal loans if you have stable, high income and no chance of needing federal protections.
Student loans vs. investing
Should you pay off student loans faster or invest the extra money?
Pay loans first if:
- Interest rate is above 6 to 7%
- The debt causes significant stress
- You do not have an emergency fund
- You have private loans with no forgiveness option
Invest first if:
- Interest rate is below 5%
- You have an employer 401(k) match (always get the full match first, it is a guaranteed 50 to 100% return)
- You are pursuing PSLF (paying extra on loans you expect to be forgiven wastes money)
- You want to max your Roth IRA ($7,000/year) for tax-free growth
The balanced approach: Get the full employer match, build a 3-month emergency fund, then split extra money between loan payments and Roth IRA contributions. This balances debt reduction with wealth building.
Frequently asked questions
Should I pay off student loans or save for a house? Both, if possible. At minimum, get the 401(k) match and build an emergency fund while making loan payments. Once those are handled, split extra money between loan payoff and house down payment savings. If your loan rate is under 5%, prioritizing the house fund is reasonable.
Is student loan interest tax-deductible? Yes, up to $2,500/year in student loan interest is deductible (above-the-line, meaning you do not need to itemize). The deduction phases out at higher incomes ($75,000 to $90,000 single, $155,000 to $185,000 married filing jointly for 2024). Details on IRS.gov.
Can student loans be discharged in bankruptcy? Historically very difficult, but recent Department of Justice guidance has made it somewhat easier. You must prove “undue hardship” through an adversary proceeding. Consult a bankruptcy attorney if this applies to your situation.
I graduated years ago and still owe. What should I do? Check if you qualify for PSLF or IDR forgiveness. Review your servicer and repayment plan at StudentAid.gov. Consider refinancing if your credit has improved and you have private loans at high rates. Making even small extra payments accelerates payoff.
The bottom line
Student loan repayment is not one-size-fits-all. Your optimal strategy depends on loan type (federal vs. private), interest rate, income, career path, and financial goals.
If you work in public service: pursue PSLF. It is the most valuable student loan benefit available. If you have high-rate private loans: refinance if your credit qualifies. If you can afford aggressive payments: use the avalanche method to minimize interest. If payments are unaffordable: apply for an income-driven plan immediately.
Whatever your strategy, do not let student loans prevent you from building the rest of your financial life. Get the 401(k) match. Build the emergency fund. Start the Roth IRA. Student loans are part of the plan, not the entire plan.
Start investing while paying off student loans