No one who has to take out and pay back student loans wants debt to define their life or ‌finances for years and years after graduation. Of course, you can make the post-grad money moves to hit that goal. But there are broader obstacles all women who pay student loans have to face, too — and they’re pretty overwhelming.

Statistics on the student debt crisis show that it disproportionately affects women. Overall, we hold 39.1% of bachelor’s degrees (compared to 36.2% of bachelor’s degrees held by men) but hold nearly two-thirds of all student loan debt in the US, which means our loan balances tend to be bigger. (Another fun fact: Women have accounted for more than 50% of degree holders for the past 20 years.) And then, thanks to factors like the gender pay gap, it takes us an average of two years longer to pay them off. For Black and Latinx women who have bigger gender pay gaps to begin with, student loan debt is a particular problem.

Yeah, it’s rough out there, but progress is being made. For example, financial services companies are (finally) being built for women, by women. And because we at Ellevest get it — like, really get it — we’re able to address your unique needs … like how to pay off student loans with the odds stacked the way they are. 

So, here’s our best advice for how to pay off student loans: don’t throw every penny you have at it. Really! Instead, follow these 6 steps, and you might be debt-free in years, not decades. 

1. Invest first

A lot of people think you must wait to invest until you completely pay back student loans. But it’s not that simple. In fact, viewing these two as mutually exclusive might mean you’re leaving literal free money behind. So, we advise people to get that free money before anything else. 

When anyone asks us if they should pay off debt or invest first, we tell them to invest enough in their employer’s 401(k) match to max it out. With the most commonly offered employer match, if you put 6% of your salary into your 401(k), your employer will match 50% of it — meaning they’ll put in 3% (there’s your free $). And since 50% is a lot higher than the average interest rate on student loans, you’d earn much more via that match than you’d be paying in interest.

We acknowledge that having debt can be really uncomfortable, so this approach might seem scary. If that’s true for you, consider this: not all debt is created equal. There’s good debt and bad debt, and student loans can be part of a former group — higher education can lead to ‌higher-earning jobs, plus, interest on student loans is tax-deductible up to the IRS-set limit.

If you don’t have an employer 401(k), simply start at Step 2.

2. Save up to one month’s worth of take-home pay next

It’s still not time to pay student loans — at least not until you’ve started an emergency fund. 

This thinking is somewhat new. In the past, it was widely accepted (by us, too!) that you should tackle any high-interest debt before stashing cash. You could always use a credit card to cover your emergency. Fast forward to popular opinion now (which research backs up): having a cash buffer is more likely to help someone recover from “financial hardship” than access to credit.

That said, getting rid of high-interest debt is still really important. So we split the difference: Start with a mini-emergency fund by saving up one month’s take-home pay as soon as you can. 

3. Now pay back student loans with high interest (>10%)  

Most people’s student debt is made up of a number of smaller loans that each have different interest rates. Start by logging onto your loan provider’s website and listing out all your individual loans in order from highest interest rate to lowest. Then, focus on paying back student loans with interest rates at 10% or greater ASAP. This method of tackling loans with the steepest interest rates, called the “avalanche method," was designed to help you pay as little interest as possible. Paying less interest means you’ll pay off debt more quickly.

Here are a few more hacks to help you pay student loan debt faster:

• Pay more than the minimum, if you can.

Making the minimum payment keeps you from defaulting and pays down the interest, but it doesn’t do much more than that. Bigger payments, particularly on your high-interest loans, are what'll actually help you make a dent in the principal … and save a lot of money in the long run.

Be sure to specify to your lender that you want the extra payment to be applied to the principal on a certain loan. Otherwise, they might spread it out evenly among all your loans, or else apply it toward future payments. That’s not the worst thing, but if you wanted to follow the debt avalanche method, it wouldn’t align with your plan.

If something happens where you can’t pay student loan minimums, you have a couple of options (at least for federal loans). You can apply for deferment or forbearance, which lets you temporarily stop making payments or pay less. Or you can switch repayment plans (from a standard plan to an income-driven plan, for example), which will usually extend the time you’re paying back your loans. These are useful options when you really, really need them, but we recommend them as a last resort.

• Beware of lifestyle creep.

If you get a raise or a bonus, or have extra cash from tax refunds or birthday money, consider using that money to pay student loans instead of taking on new expenses or spending it. If you were able to make things work with the money you’ve had before, you can probably continue to do so.

For most people, housing is where you have the biggest opportunity to keep costs down. We’re not saying you have to get roommates, settle for a smaller and cheaper room, or live in a less stylish neighborhood, but making concessions like these can really help.

• Lower your rates, if you can.

A lot of lenders will reduce your interest rate by 0.25% if you enroll in an automatic payment program. That may not sound like a big discount, but every little bit helps. Not to mention, auto-pay makes it easier to make all your payments on time and avoid late fees.

If you’re making payments by their due date — and have been for a while — you might also call and ask for a lower rate. Student loan refinancing or consolidation are other options to look into. 

• Get relief, if you qualify.

If you work in public service, you might qualify for federal and state student loan forgiveness programs, which offer partial and full forgiveness on student loans over several years. The program applies to qualifying loans for government and non-profit employees, teachers, lawyers, and doctors who meet certain criteria. If this is you, there’s almost no reason not to go for this.

4. Then, finish your emergency fund

What about your student loans with interest rates under 10%? They’re not the priority just yet. Reducing financial stress means considering your entire financial picture — not just the one that involves debt from your education. So now, finish your emergency fund. 

We recommend saving three to six months’ worth of take-home pay (or up to nine month’s worth if you’re self-employed). If you need help determining which end of the range you need to land on, consider your stability and security. By stability, we mean the more uncertain your financial life, you’ll want to aim for a cushier emergency fund. By security, we mean even if you have a steady, salaried job, you might not feel prepared with three months of salary saved — so save more! We throw out a range for a reason: do what feels best for you.

5. Pay student loans with medium interest (5-10%) 

After you’ve saved for Future You, it’s time to pay back student loans with interest rates between 5% and 10%. These aren’t crushing your bottom line, but it’s worth chipping away at them as efficiently as you can.   

Once you’re clear of these medium-interest student loans, you could consider making minimum payments on any loans with interest rates less than 5%. But don’t use all your financial wiggle room in one place … 

6. Finally, invest toward your personal goals

Did you really do all that!? Congrats! With loans a thing of the past (or almost — either way, get used to saying that), it’s time to focus on your long-term goals. We recommend keeping up your monthly payment routine, but instead of forking over money to lenders, pay yourself first. It’s one hack to keep you from overspending now that you’re debt-free. That said, to mark the occasion, we fully support a guilt-free splurge. 

Anyone who makes it to this final step can understand the massive sense of relief from paying back student loans in full. There’s also a lot of us who’ll need a good amount of time and effort to get rid of them — or need forgiveness once and for all. If that sounds like you right now, focus on what’s in your control. Student loans are daunting — but they don’t have to define your entire financial future.

Need more advice navigating your student loans? If you’re still nervous about building your student loan payments back into your budget, or you need some help making a debt plan or a budget (or both), our financial planners can help. Become an Ellevest client today to unlock up to 50% off all sessions and free workshops.

Disclosures