What is the Most Affordable Way to Pay Back Student Debt?

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College costs are on the rise, and most students struggle to find ways to cover them. Sure, everyone would love to get a full ride scholarship with room and board included, but that kind of opportunity rarely comes about. Close to 60% of college students borrow money to pay for their education, and most of them spend decades trying to pay it back. The question is, what is the most affordable way to pay back student debt? Is it through student loans, credit cards, personal loans, payday loans…? The list goes on from there.

For the purpose of this post, we are going to compare student credit cards to various types of student loans to determine which option will best suit your situation. In the end, we will have a definitive path for you to take with your student debt.

Defining "Affordable"

In order to determine what the most affordable way to pay student debt is, we have to decide what "affordable" means. There are two ways to look at this. On the one hand, affordable may simply mean the option with the lowest monthly payments. On the other hand, affordable may mean the option with the overall lowest costs. We will assess both short term and long term affordability in this article, but you need to be aware of the differences as you read on. Your priorities will determine what's best for you.

Establishing Assumptions

For the purpose of this comparison, we will assume that a student graduates with $25,250 in debt (BusinessWeek) and that he or she makes $44,900 a year (National Center for Education Statistics "Fast Facts"). We will also assume that he or she has a bachelor's degree and is now past the 6 month deferment available for some loan payments. Finally, we will be looking at a 3.4% interest rate for subsidized student loans (Forbes) and 3% for student credit cards. We will not assess unsubsidized loans or credit cards with higher interest rates, as there are some cards that offer 0$ APR.

Comparing the Options

In the following charts, we will compare different payment options for student loans along with standard credit card payments. All of the debt falls in line with our "assumptions," but it may not be directly representative of your situation. This is just meant to be an average.

The income-based payment option uses the amount of money you earn per year to decide how much you will pay back on your loans. The more you make, the more you owe. The 10 year repayment plan is the most basic option of all, offering a fixed 12 months of payments, regardless of their value. The graduated plan starts off with low payments, but it then increases them by roughly $50 every two years (reflecting an increase in wages). The extended plan is designed to give graduates 25 years to pay back their loans, rather than 10.

In the average monthly payments chart, we looked at the approximate amount of money you would have to pay each month for different lending options. The black bars on the credit card and graduated options represent a range of payments that you my encounter. Credit cards are usually set up with $15 minimum payments, or a certain percentage of the balance due. In this case, the minimum payments were the interest plus 1% of the loan value, peaking at $315.63. The graduated payments ranged from $160.56 to $372.75 (Federal Student Loan Repayment Calculator).

As you can see, the extended loan option offers the lowest overall payments, but the credit card has the potential to be lowest once its balance is low.

*Note that the extended plan is not available for loans less than $30,000 in value. We just used the formula to do the calculations for $25,250 as an example.


In the payoff time chart, we assessed the amount of time it would take for you to pay off each loan in full. We used the Compare Cards rate calculator to figure this out, along with our assumptions from the beginning. Because the student loans have high monthly payments, they have a lower payoff period than credit cards do. Of course, this is based on making minimum payments for all options. If you chose to pay more than the minimums on your credit card or loans, you may be able to cut the time in half.

In this chart, we compared the payoff period for the debts with the average monthly payments to determine what the true cost of each lending option was. The extended period turned out to be the most costly option as a whole, with the others all fairing within a few thousand dollars of each other. Keeping all of this in mind, the income-based loan repayment plan appears to be the most cost-effective long-term.

Analyzing the Results

It comes down to the basic fact that you must determine what kind of "affordability" matters to you. Do you want to get out of debt as quickly as possible, or do you want to have a really low payment until you have a more stable financial basis? You can't achieve a low monthly payment and a short term solution, unless you have high interest costs. So for the purposes of providing some direction, you must consider the ideal combination for your life, and that will help you see if credit cards or student loans are the right choice for you.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.

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