The Crazy Math Behind Student Loan Balances

Photo to accompany story about how to pay off student debt.
Mandy Velez paid off more than $100,000 in student loans after she graduated in 2013.

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Student debt is no joke. In fact, it hit a record at more than $1.5 trillion, according to Federal Reserve data. Only mortgage debt is larger in the U.S.

If you’re one of the millions of people who find themselves in trouble over student debt, you may find yourself, on a confusing and intimidating journey — but we put together some resources to help empower you to pay off your loans and get your financial freedom back.

First, you should pay attention to the loan’s amortization schedule, which determines how much of the payments go to interest and how much to the principal balance. 

While you may pay the same amount every month on a loan, in the beginning more of the money goes to interest; as the loan ages, more of the money is applied to the balance.

In order to see exactly how much, and prevent surprises, you want to see an amortization schedule — which tells you in detail, for each pay period, what portion of your payment goes to interest and what goes to principal. For student loans, you’ll have to ask your loan servicer to show you one. 

What to Know About Your Student Loans

Regardless of your balance and how it got there, getting free of student debt requires a solid strategy. The first step is knowing what you’re dealing with. 

Your loans are either private or federal; the vast majority of student debt is held by the federal government. 

Federal student loans always have a fixed interest rate, between 2.75% and 5.30%, per the U.S. Department of Education. Private loans, on the other hand, are made by banks and credit unions among others, as opposed to the government. Interest rates can vary and be higher or lower than federal student loans.

If you do have a federal student loan, know that your payments are frozen for the remainder of 2020. The CARES Act passed in March after the pandemic broke out mandated an interest-free pausing of the repayment of federal student loans, and that provision was renewed in August until the end of the year. 

If you can still make payments on your federal loans during this period, you can take advantage of this opportunity to catch up. The freezing of interest means that whatever you pay now is going directly to reduce the principal. This in turn lowers the amount you pay interest on.

“For my clients who can still afford to continue to pay on their student loans, I have advised them not to stop paying” for exactly that reason, says Paul Fenner, CFP, a financial advisor and founder of TAMMA Capital in Commerce Township, Mich. “People are often tempted to stop paying, thinking that they may save the payment for other financial goals, but (they) do not have the discipline to do so,” Fenner adds.  

“If your job is at all uncertain, in any way, stockpile the cash,” says Ryan Frailich, CFP, a financial advisor and founder of Deliberate Finances in New Orleans. However, if you have no other non-mortgage debts, already have a sufficient emergency fund on hand, and your job is secure, then go ahead and pay your student loans down, Frailich says: “The mental freedom of being done with them is worth it.”

Federal Loans vs. Private Ones

Note also that there are often more payment options with federal loans than private ones.

For example, you might be eligible for the Public Service Loan Forgiveness program. This program forgives the remaining balance on some types of federal student loan, but only after you made 120 qualifying monthly payments under one of the qualifying repayment plans. You also have to be working full-time for a qualifying employer — either the government (federal, state, local, or tribal) or a not-for-profit organization. 

If you have a private loan with high interest, you may consider refinancing, which means getting a new loan with a lower interest rate. This would lower your monthly payments and might save you money over time. 

Refinancing makes sense if you have a relatively high credit score and can save a significant amount on your loan payments. While there is no hard and fast rule on what constitutes a good credit score, you definitely want yours to be above 670, in order to get an attractive rate.       

Take a Look at Your Budget

Once you’ve got a handle on your balance and interest rate, it’s time to craft a payoff plan. 

First things first: You’ll want to go through your budget, item by item, and see if there are expenses you can cut and redirect toward your loan payments.

Pro Tip

Ask your student loan provider to send you an amortization schedule, which lays out exactly how much of each payment will go toward interest.


Because of the way amortization works, the best way to make a serious dent in your balance is to make additional payments on top of your minimum amount due. That extra cash will go directly to reducing your balance. (Make sure to let your loan servicer know that you want the extra to be directed towards the principal.) 

“Minimum payments won’t typically get you there. You need to have some strategy for getting extra money, even if it’s only $20,” says Kendall Philbrick, a personal finance blogger who goes by @babeonabudgetblog. 

This approach of cutting discretionary expenses and funneling more money into monthly payments helped NextAdvisor contributor Bernadette Joy and her husband pay down more than $25,000 of her student loans.

“It’s important to note that having debt — no matter how it was incurred — is not a moral or social failing. It is a stressful part of life, but it can be managed,” Joy told us.

Aside from cutting out discretionary expenses, Joy also found additional streams of revenue to take advantage of, such as renting out a room in her home. 

What If You Have Multiple Student Loans? 

If you have multiple balances to worry about, it can be overwhelming to manage those payments. 

To gain clarity, consider two of  the most popular payoff strategies: the debt snowball and debt avalanche.

The debt snowball method encourages making minimum payments on all debts except the account with the lowest balance. On the latter, you’ll make higher payments than the minimum. Once that debt is paid off, your monthly payments will go towards the next smallest debt. Seeing accounts zero out thanks to your work will provide motivation to tackle your biggest balances.

Conversely, the avalanche method encourages focusing first on the account with the highest APR, or annual percentage rate. That’s the one you’ll devote more money to, while making minimum payments on the other accounts. Once that is paid off, you’ll focus on the next highest-interest account. This method will save you the most money in interest charges over time.  

There’s also the so-called landslide method, in which you pay off the most recent account first. This may have a more beneficial effect on your credit score, since credit bureaus weigh more the payments you make on the most recently opened accounts.  

Mandy Velez used the snowball method to pay off more than $100,000 in student loans after she graduated from the University of Pittsburgh in 2013.

“I think having a payoff plan that works for you is the best plan of attack, followed by having a budget,” says Velez, an assistant managing editor at The Daily Beast who went viral last year for her student loan payment Instagram 

In the end, the snowball method helped her “feel motivated to pay and like I had a plan of attack.” Velez always treated her loan payments like a bill and paid them like it was rent. In her words, it was a “non-negotiable.”

Philbrick, on the other hand, used the avalanche method. She adds, “in general, conquering student loans comes from sitting down, getting organized, figuring out exactly what you owe as well as your interest rates, and starting from there.”

Above all, though, she recommends to anyone paying off student loans to figure out how much they accrue in interest every month, since this is what significantly adds up over time.

Be Diligent and Stick to It

Once you decide how you want to knock those loans down to $0, you’ll want to mentally prepare yourself for the road ahead.

Enrolling in auto-pay or paying your loans bi-weekly instead of monthly can create habits that encourage you to be proactive about paying debt off.

This may mean saying no on occasion to dinners or happy hours with friends — but that doesn’t mean it’s not important to treat yourself every now and again.

“When you’re too restrictive, it doesn’t work,” Philbrick says. “You have to come up with something that’s sustainable. Carving out money in your budget for things you love is so important, whether it’s happy hour or a friend’s birthday. You have to work that into your budget.”

There’s no sugarcoating the fact that paying off your student loan debt is an uphill battle. But with these strategies in mind, you’ll be able to cross that finish line before you know it.

Editor’s note: A previous version of this story cited the case of a student loan borrower who claimed to owe a $76,000 balance even after paying $120,000 on a $80,000 loan. Upon further examination, we could not confirm the details of her account, so we’ve removed references to it from this story.