The Smart Way to Pay Off Student Loans

Reyna Gobel has a message for college graduates who, like her, find themselves carrying around student loan debt the size of a small mortgage: Don’t wait until you pay it back to start living your life. Because with over one million graduates holding at least $40,000 in debt, that wait could be very, very long. That’s why in her book, Graduation Debt, she offers ways to not only take control of student loan debt, but also to start thinking about spending smartly in other areas of your life, including travel, potential home purchases, and even visiting upscale restaurants on occasion.

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“The number one goal should be awareness of your budget,” Gobel says. She promises that with a few tweaks here and there, you can have the lifestyle you’ve always wanted. “Don’t assume you can’t afford it. You don’t have to let your student loans overwhelm you – you can live a great life with them,” says Gobel, 33, herself the holder of some $63,000 in student loan debt.

Sound too good to be true? I recently spoke to Gobel and asked her to break down some of her top tips for us. Here’s what she said:

Know what you’ve got on the books. One of the biggest mistakes graduates make is plunging into their post-college life without checking up on exactly how much they owe, and to whom. In fact, Gobel herself says she accidentally defaulted on a loan that she left out by mistake when she consolidated her other loans. She didn’t find out about it until years later, which meant she had to put time and energy into recovering from the default. “When you have 16 different federal loans, it’s hard to get them all together,” she says. That’s why one of her first pieces of advice is to use the National Student Loan Data System to find all of your loans.

Pick the right repayment plan for you. New repayment plans with appealing titles, such as “income-based repayment,” can be tricky, because they’re not for everybody. And if you pick the wrong plan and don’t realize it until years later, you might find out that you missed out on a program that you were actually eligible for. Or that you would have been better off paying down your loan faster, instead of making smaller payments. If you’re a federal employee or work for a nonprofit, for example, then you might be able to take advantage of loan forgiveness programs reserved for public service jobs, adds Gobel. (She offers more details on her website.)

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If you’re going to miss a payment, call. If you’re not going to be able to make a payment, be sure to let your lender know. If you have a legitimate reason, then they might be able to grant you some sort of reprieve, says Gobel. If you miss a payment without that reprieve, you could see your credit score drop, which will make it more expensive (or impossible) for you to take out other types of loans.

That advice applies even to private lenders, who may offer you an extended payment program or temporary pause in payments. Of course, if you can, you want to continue paying, because even with a reprieve, your interest still accumulates.

Don’t give up all your splurges. “When you’re on a really strict diet, you begin to want to spend so much more,” says Gobel. That’s why she advocates a more balanced approach, by prioritizing your true loves – whether it’s a big apartment or a daily frappaccino – versus the ones you can cut back on. “Don’t give up what’s important to you, and you’re the only one you can decide what that is,” says Gobel. Meanwhile, reduce the expenses that you can, by negotiating your rent, care insurance rates, and other costs with wiggle room, so you can redirect your cash into more pleasurable pursuits.

In fact, have a “fun” account. By creating a dedicated bank account for your “fun” expenditures, not only will you avoid guilt each time you splurge on a pedicure or drinks with friends, but you’ll also be sure to always retain enough money for other costs, including those student loan payments. Says Gobel, “Having a fun account gives you the opportunity to have more spontaneity in your life so you don’t have to budget everything exactly.”