Student debt is an epidemic in our country. As of 2021, 43 million people in the United States had taken out federal student loans at an astounding rate of $1,447.1 billion. You may have been out of school for several years and still have those student loans hanging over your head. The good news is that right now, federal student loans are in forbearance until September 30, 2021. That gives you some time to chip away at student debt while the interest rates are frozen and develop a strategy for when the payments start to come again.

There are many strategies for paying off debt quickly, but for the purposes of this blog post, I am going to teach you how to apply the debt snowball to student loans.

Step 1: List your current student loans.


Oftentimes, students will take out multiple loans for their education. They can be federal, personal, subsidized, unsubsidized—the list continues, and they all probably have different interest rates. Being aware of what you’re spending and how it affects your finances is a good rule of thumb for any debt or expense. So, list the debt, the balance, and your current monthly payment (if you’ve paused on the monthly payments due to COVID, write down what you were paying before.) Next, divide the minimum monthly payment into the balance to find the number of months it would take to pay off each debt.

Figure out what debt can be paid off most quickly using the minimum monthly payment. The key here is to pick the debt that can be paid off the most quickly—not the one with the most interest. You’ll want to hold onto this number.

Step 2: Determine your winning percentage.


The winning percentage is the extra room in your budget. When it comes to budgeting, I recommend living on 70-80% and dividing the rest between tithing and investing. So, if you live on 70% it looks like 10% for tithing, 10% for investing yourself, and 10% for professionally investing. However, if you’re trying to pay off debt quickly, you would put a percentage toward that debt. (Note: the minimum payments for your student debt are factored into the 70% you live off of. The winning percentage is extra.) If you are living off 80%, I recommend tithing 10% and using the other 10% for student debt. If you are living off 70%, I recommend tithing 10%, investing 10%, and using 10% for student debt.

These percentages are just suggestions. Essentially, your winning percentage is the amount that is not currently being used in your budget. If you’re living off of 100%, you have to dig around and find room in your budget. What can you sell? What expenses can you reduce or eliminate from your life? (Do you need all of the streaming services, or just one or two?) Can you start a side hustle? Getting out of debt is like digging trenches—it’s hard work, but when it’s done, the waters can flow.

Step 3: Apply your winning percentage to the debt that can be paid off the most quickly.


Take your number from step one (the student debt that can be paid off the most quickly using the minimum monthly payment). Add your winning percentage to the minimum payment each month and watch that debt evaporate!

Step 4: Once a debt is paid off, apply the total monthly payment to the next debt.


This is where the term ‘debt snowball’ really comes into play. Since one of your loans is paid off completely, you can apply the entire minimum you were paying on that debt and your winning percentage to the debt that can be paid off the next fastest.

Step 5: Apply your vastly increasing winning percentage to accumulating assets.


Once all of your debts are paid off, you’ll have a huge winning percentage. All of the minimum monthly payments that you were making can now be used to build wealth! When you get to the end of the ‘program’, take all of the extra money you have hanging around and put it towards investing in things like real estate, business, and stocks.


Note: If you have other debts along with student debts, this formula works just as well. Just be sure to write all of your debts, balances, and minimum monthly payments in your list in step 1!  We also have a debt snowball calculator on our website where you can input all of the information listed here. For more thorough examples and teaching about how to get out of debt I recommend my book, Money Mastery.