5 Ways to Manage (and Lower) Student Loan Debt

The monthly expense of student loans impacts U.S. households in big and small ways. For some, it means saving less for retirement or working two jobs, while for others, student loan debt may prevent people from switching careers, or even pursuing an entrepreneurial endeavor. And given that more than 44 million Americans have some form of student loan debt, managing this expense is a common concern.

Fortunately, there are strategies for streamlining your payments, reducing your monthly debt expense, and paying down your loans faster. Here are five ways to take control of your student loans:

1. Investigate Income-Driven Repayment Plans

These programs are an ideal option for people who are working in lower salary careers and struggling to manage their federal student loan debt. With an income-driven repayment plan, you can apply to reduce your monthly loan payment to an amount based on your discretionary income, usually about 10%. To be eligible, the determined payment amount does need to be less than what you’re paying now. So if 10% of your discretionary income is a larger amount than your current loan payment, you likely wouldn’t qualify.

Borrowers pay their new monthly payments for a set period – 20 to 25 years – and the federal loan servicer forgives any remaining balance after that time. It’s important to know: Under these plans, your payment doesn’t stay the same but instead fluctuates with your income and family size. Borrowers need to certify their income and household size every year to maintain an income-driven repayment plan.

2. Consolidate Your Federal Loans

You can consolidate your federal loans under one federal loan servicer and have just one loan payment. Consolidating allows you to streamline your expenses and may make you eligible for income-driven repayment plans and loan forgiveness programs. However, you can’t lower your interest rate. That’s possible when you refinance with a private lender, but not with a federal loan servicer.

Still, consolidating your loans can be a great move if you want just one federal loan payment or are planning to take advantage of the aforementioned repayment or forgiveness plans. The process is free, and in fact, watch out for any lender attempting to charge you to consolidate your federal loans. Lastly, the terms of your loan may end up longer—which could lower your monthly payment, though it will increase how much you repay over the life of the loan.

3. Refinance Your Private and Federal Loans

Refinancing can be a great way to get out of debt faster—you can lower your interest and often your monthly expense. If you take the opportunity to consolidate your federal and private loans, you can also simplify your payments in the process. Start by comparing interest rates across lenders. Keep in mind that while a variable rate may be lower now, it can fluctuate over time. These are good options if you think you’ll pay your loan down quickly. Otherwise, a fixed rate may be a better choice.

Once you’ve selected a lender, examine the available terms. In addition to the interest rate, the length of the loan will impact how much you ultimately pay. Loans are typically in five-year to 20-year increments. A shorter loan term may mean higher monthly payments, but you’ll finish paying off the loan sooner. Meanwhile, a longer-term loan can decrease your monthly expense. However, you’ll end up paying more interest over the life of the loan.

4. Apply for Student Loan Forgiveness

The prospect of having your student loan debt eliminated may seem like a dream. However, the Public Service Loan Forgiveness program offers select borrowers the chance to do just that. The program forgives the student loan debt of eligible public sector and nonprofit workers who have been paying on their loans for at least 10 years. The first cohort of applicants applied in 2017—and officials expect the applications to grow substantially in the future.

With this program, though, the details can make or break your application. Consider that the program rejected 99% of student borrowers that applied, mostly because they didn’t meet the program requirements. Don’t let this discourage you--more applicants will likely be accepted in the future--but do pay attention. First, make sure you’re enrolled in an income-driven federal loan repayment plan. These are the types of loans that qualify. Also, you need to certify your public service employment annually. And you need to have made at least 120 payments on your current student loan debt.

5. Defer Payments as a Last Resort

Deferring loans prolongs your time in debt. But it’s a good option if you’re facing financial hardships such as unexpected medical bills or a period of unemployment. Many students also defer undergraduate loans if they’re pursuing a graduate degree. With most deferrals, you’ll negotiate a set period that you won’t need to make payments toward your loan principal. In some cases, you can also defer payment on your interest—but not with every loan.

For example, most subsidized federal loans allow you to defer interest, but unsubsidized ones do not. If you can’t defer the interest, you’ll need to make monthly payments on it, or the interest will be added to your balance once you begin payments again. Attempting to defer your loans is better than going into default. However, if the reason you’re considering deferral is that the payment is too high, investigate whether refinancing or applying for an income-driven repayment plan would work for you.

Students loans can take a big chunk out of your finances. But fortunately, there are ways to manage your debt and potentially pay it off faster. Dig into the available solutions and you'll rest easy, knowing that your loans are under control.