Paying Off $200,000 in Student Loans

Guidelines for understanding whether to pay off a mountain of student loans or using the money towards retirement or a home down payment -- and how to prioritize them.

We graduated law school with over $200,000 in private student loans and have been paying them back, but until recently did not tackle those payments aggressively. After reading Mr. Money Mustache and understanding how saving more money each month didn’t feel like a sacrifice, we got the confidence we needed to truly tackle these loans and start picking them off one by one. Here is a snapshot of where we were, where we are now, and how we plan to get rid of this albatross.

 What does $200,000 in student loans look like? We funded our law school education with a constellation of loans: $18,500 per year in Stafford loans, $5,000 in Perkins loans, and $13,000 per year in private loans. Upon graduation, we each had $91,500 in loans. Plus, we each took out $10,000 bar loans to pay for our $2,500 bar study classes and living expenses. Total indebtedness: $239,000.

Where are we now? After almost six years of paying them off with the minimum payments, consolidating the federal loans, and three months of aggressively paying off one loan, our loans look like this:

Loan Type Interest Rate Current Balance Current Payment
My Federal Consolidated Loans 5.38% $75,288.58 $473.79
Spouse’s Federal Consolidated Loans 4.25% $77,069.85 $504.00
My Private Loan 2.19% $10,310.18
My Bar Study Loan 3.19% $5,904.40
Spouse’s Private Loan 3.50% (variable) $12,843.50 $97.12
Spouse’s Private Loan 3.25% (variable) $12,664.95 $96.20
Spouse’s Bar Study Loan 3.55% (variable) PAID stamp by Naypong $0.00
TOTAL   $194,081.46 $1,347.45

At the beginning of the year, that last loan was $12,000 and had a $90 per month payment. We paid it off last month, and it felt Ah-Mazing! We now have less than $200,000 in student loan debt and our monthly payments are $1,347.

How do we plan to pay it off? There are lots of opinions about how people should pay off debt. You have Dave Ramsey’s argument that the psychological reward of paying off the lowest-balance debt will help you snowball that motivation into your next debt payment. On the other end of the spectrum, you have math, which says that paying off the highest-interest debt is the most efficient way to reduce your debt. The differences between them is endlessly debated in personal finance circles. In fact, Wisebread just posted a synopsis of each method today. I think it’s more than a choice between the emotional / psychological route or the rational / mathematical route. I believe it also depends on the type of loan and your personal goals.

For our student loans, I believe the best method for us is to tackle the lowest balance first. There are several reasons why this works for us. The primary reason is because our goal is to have greater financial stability. Reducing the amount of our monthly payments will increase our financial stability. Unlike credit card debt, our monthly payment does not change depending on the balance of the loan. Unlike a mortgage, we cannot refinance our student loans after reducing our principal. The only way to reduce our monthly student loans liabilities is to get the monthly payment to zero. That is, pay off the entire loan. By reducing our monthly payments, we have a lower monthly income requirement and therefore greater financial stability.*

Other things to consider:

  • Are the rates variable? If interest rates are going down and expected to stay low, then a variable interest rate is not too much of a concern. In the current economic environment, however, with interest rates already having risen and the Fed expected to begin tapering its economic support soon, we expect our mid-range interest rate loans to increase soon.
  • Federal loan repayments can be tailored to your income. Our highest interest loans also happen to be our highest balance loans. If the tables were turned, and they were our lowest balance loans, we probably still would not pay them off first. The reason is because Federal loans offer income-sensitive repayment options like Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR), as well as deferment and forbearance options. Federal loans pose less of a financial stability risk than those loans that cannot be modified or deferred if there is a change in circumstances.
  • Federal loans are eligible for Public Service Loan Forgiveness. If you work for the government or a non-profit, then you should look into Public Service Loan Forgiveness if you haven’t already. In order to receive forgiveness after 10 years, your loan needs to be Federal, consolidated, and under an income-sensitive payment plan for at least part of the time that you work for a government agency or non-profit. My spouse works for a non-profit, so we are leaving his Federal loan alone for the time being.

That said, when it comes down to a $150 difference between one loan or another, we chose to zero in on the higher interest loan. That means that the $12,843 loan is in our crosshairs and we hope to make a big dent in it next month.

* The diligent reader may have noticed that $5,904.40 loan, which is the smallest balance. That lender, however, could not tell us whether our monthly payment would decrease if we paid that off, because it is grouped in with another loan. Because it’s also a lower interest rate than the $12,000 loans, we placed that loan at a lower priority than the $12,000 loans.

“**One of my readers recently informed me that student loan refinancing is actually a thing (despite what I said before). After hearing about this, we are now strongly considering it. There are quite a few lenders out there with varying interest rates and term lengths, so we are still shopping around. But be careful! If you refinance federal student loans your lose your government protections. I will keep you all posted on what we decide to do!”

For tips and tricks on how to get out of debt check out these articles.

5 Easy Habits for Millennials to Avoid Debt
Creating a Side Gig to Pay Off Debt
Jedi Mind Tricks to Pay Off Debt Faster
Frustrated With Great Lakes
Walmart Savings Catcher Phone Number

Images courtesy of Pakorn and Napong, via

17 thoughts on “Paying Off $200,000 in Student Loans

  1. I have a decent amount of law school loans too, but I worked full time and went to school part time at night so I didn’t have to borrow as much and had savings to tide me over so didn’t need the Bar loan. I thought the payment was lowered if your balance changed? I’m not sure. It probably has to be a substantial amount maybe. If it doesn’t change, your strategy is probably the right one. I don’t have any variable rate loans so I don’t have to worry about that…but you’re right, rates aren’t staying low forever.

  2. Your breakdown of the loans is a big eye opener for me. When I went to school, I graduated with some loans, however, my mom paid them off with an inheritance from my great aunt. Looking at your numbers, I’m counting myself pretty lucky!

    I need to show these to my teenage son to help him understand the economics of student loans.

  3. Honestly, the fact that you have such a GREAT handle on what your situation *really* is puts you far ahead of others in the same situation! As you well know with the education you’ve received, Knowledge is Power!

    You’ve already reduced your debt by almost 20%, and that’s a great accomplishment! Congrats!

  4. Thanks for sharing! Are you practicing law now hopefully? If so, what type?

    I see that Bar Study Loan gone by year end! And you are right, paying the loans off feels amazing!

    What you go to law school if you had to do it again?

    • I’m still practicing, but he isn’t. He’s a software developer now. I would go to law school again, and I if my husband can find a way to merge his legal knowledge with his programming skills, I don’t think he’d regret law school.

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  6. I graduated from law school 12 years ago. I have not been able to get very good paying jobs and only started making $50,000 per year 2 years ago. I have $180,000 in student loans. I have a child in college and one about to go to college. My loans are high because I was supporting my kids and their father, who didn’t work, while I was in law school. I have tried to find a better paying job but this economy is making that really hard. I also don’t have health insurance so one minor illness can put me in debt that it will take me years to pay off. I feel utterly doomed. What do you suggest I do?

    • You are in a tough situation, no doubt! You’re right that, without health insurance, you are one illness away from a bad financial situation. If I were you, I would get health insurance and put the student loans on an income-sensitive plan. Slash your spending ASAP and encourage your younger child to study HARD for the SATs so s/he can get a good merit-based scholarship to college. Good luck!

  7. I went to law school debt free thanks to working, grants, scholarships, and internships. I went to a no name law program and make good money now 75k (took 4 yrs). Worked the public sector at crap pay to build up experience to earn more since my JD isnt from a top 14 or top 20 school.

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