How Do You Pay Off Student Loan Debt with a Low Income?

Renee Layberry
May 4, 2021

Repaying your student loan debt may seem daunting, especially if you’re not generating as much income as you’d like.    Still, there are steps you can take to stay on top of those payments. You can start while you’re still in school, by making small monthly payments. Once you graduate and are earning a salary – even if it’s a lot lower than you’d like – you’ll be able to increase those payments.   We look at your options below, including refinancing, financial planning, and earning extra income to boost those loan payments.  

Refinance your student loan

Refinancing your student loans can be a great option to consider, especially when it’s hard to make ends meet. This method can help you repay your loan faster and even reduce your monthly payment amounts.  

What is student loan refinancing?

Refinancing loans might seem scary and complicated at first, but it really isn’t. When a loan is refinanced, a private lender pays off your existing student loans and replaces them with one new loan, which has a new interest rate. A new repayment schedule is also implemented, with payments made to the new lender.    Refinancing your student loan is a good idea if you can find a lender with a better interest rate. It lets you save money, repay your loan faster, and become debt-free sooner. Use this calculator to see if you would benefit from a refinance.   There are times, however, when refinancing with a private lender may not be your best move. You’re giving up federal loan programs including deferment, forbearance, income-based repayment, and forgiveness. It’s very important to understand the exact implications of having your federal loans refinanced with a private lender.   In any case, when you’re thinking about refinancing, you’ll need to know what your debt-to-income ratio is.  

What is a debt-to-income ratio?

Understanding your debt-to-income ratio (DTI) will help you see where you stand with private lenders for potential refinancing. It shows how much debt you have compared to your overall income. Knowing your DTI can help you plan for your student loan repayments particularly if your current income isn’t very high.   Calculating your DTI is simple: Add up all your recurring monthly expenses such as rent, utilities, loans, and credit card payments. Divide that by your gross monthly income the money you earn before taxes and other deductions. The lower your DTI the better, as it shows an increased capacity for repaying your loan.   According to the Consumer Financial Protection Bureau, a debt-to-income ratio lower than 43% is what lenders look for when people want to obtain a mortgage to buy a house. You can use that figure to see how your DTI stands.   Photo by Kelly Sikkema

Make a budget

Seeing the whole financial picture is the first step to getting organized and planning your loan repayment efficiently. Digging your way out of your student debt also means having the right mindset.    Creating long-term and short-term financial goals will help you create a budgeting strategy that works. Breaking down those goals into smaller ones will keep things manageable. Make sure to keep those goals measurable and realistic.   Making a budget will give you that clear picture of where you stand financially and where you’re headed. List all your monthly expenses, from rent and utilities to groceries and entertainment. Then see what is left for your student loan repayment.    This tactic works whether you’re still in school or not. By monitoring your expenses and making sure you don’t go over your budget, you’ll make your money last all semester. After you graduate, a budget will help you repay your student loan more efficiently by keeping you on track.  

Make little life changes to save big money

When it comes to saving money, every little bit helps. Instead of getting coffee at your local café every morning on your way to class, for example, try making that coffee at home and taking it with you in a reusable cup. It might only seem like saving a couple of dollars here and there, but if you add it up, it can be a significant amount of money in the long run.   Similarly, if you regularly go out to eat with friends, this might be the time to start cooking more often and inviting them over for potluck dinners. Whether you’re a novice or a pro in the kitchen, there are lots of easy and delicious recipes online. The same applies to shopping; consider going to thrift stores for clothes or drugstores for cheaper cosmetics and grooming products.   If you’re still struggling to trim your budget, despite having chipped away at your spending habits, you might need to think of more radical alternatives. For example, a big chunk of your monthly expenses goes to housing.   Here are some things you can do:
  • Get a roommate. A roommate will significantly cut the amount you spend on rent and utilities, and could be the short-term solution to putting more money toward your student debt repayment.
  • Sell your car. If you have a car at college, then you know that this is another place a large portion of your money is spent. Gas, car insurance, and regular maintenance all quickly add up. According to the AAA, owning and driving a small sedan can cost you $7,429 per year on average.
  • Move. Certain neighborhoods are more expensive to live in than others. Moving to a cheaper area and even downsizing the place you live in can save you thousands of dollars over time and can help you pay off your student loan even with a low income.
  black female sitting on the floor on her laptop working her side hustle  

Bring in more money

Making more money might seem an obvious solution to paying off student loans faster, but figuring out how to do it can be trickier. Side hustles can make a meaningful difference. From taking online surveys to tutoring, all options are good options.  

Offer services online and in your neighborhood

Offering to help people is one of the easiest ways to make extra money.    If you love animals, for instance, start a local dog-walking and cat-sitting service. You can find opportunities in your area with Rover   If you’re an expert in a certain subject, offer your knowledge in the form of tutoring. Whether it’s something you’re studying at college or a second language you’re already fluent in, your knowledge can be a valuable way to earn more income. Use Wyzant to find local tutoring gigs or Unbabel to put your language skills to use for translating.    Another way to bring in extra money is to offer music or singing lessons. Like tutoring, you don’t have to travel to people’s homes for this to work. There are platforms like Lessonface and TakeLessons for music and voice teachers where you can sign up and find students.  

Turn your hobby or passion into money

Turning your hobbies into an additional revenue stream is a sure way to pay off your student loan quicker. If you’re a photographer, offer some professional portraits or commercial shots to businesses in your area. Make exercise, yoga or meditation videos, and offer those online, collecting membership donations through Patreon. If you have a knack for arts and crafts, you may want to consider selling your art on Etsy.