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More than half of Americans today graduate from college with some level of student loan debt. The process of managing that debt is often overwhelming and exhausting to borrowers, however. Knowing just how to deal with student loans (and save money along the way) can take years to figure out.
If you’re in the middle of repaying your student loan balance(s), you might be wondering how to beat approach the process. Done properly, there are plenty of ways that you can save money on your loans, take advantage of the benefits available to you, and protect yourself (and possibly even your parents) along the way.
Here are nine things to you can do to fully optimize the student loan repayment process, allowing you to manage your debt in the most beneficial way possible.
Table of Contents
1. Figure Out Exactly Where You Stand
The typical borrower doesn’t make their final student loan payment until they are in their 40s, according to recent research, with the average repayment time frame sitting at 19.2 years. So no matter how much you borrow, there are likely to be many years between college graduation and your payoff date.
That’s why it’s incredibly important to always stay on top of your balance(s) and know your debt status. By doing so, you’ll not only have a comprehensive overview of your financial situation, but also know whether or not you need to consider taking a different approach to repayment.
This is helpful if you anticipate a big life change in the next couple of years, such as buying a home or getting married. It’s also important for staying on top of your overall finances in terms of saving for retirement, allocating monthly funds toward debt and savings, and analyzing your budget.
2. Utilize Helpful Features to Manage Student Loan Debt
Depending on the loans you hold, you may have access to certain helpful features that can make repayment easier, faster, or more affordable.
If you were to lose your job or otherwise find yourself struggling to make monthly loan payment as scheduled, most federal student loans offer forbearance and/or deferment options. These features will help if you are in a situation where you temporarily cannot afford to make your full payments.
With forbearance, you are able to reduce your monthly payments — or even stop making them — temporarily if you’re enduring a financial hardship. It’s important to note, though, that even if you’re not required to make full payments while in forbearance, your debt balance will continue to accrue interest.
Placing your loans in deferment is similar to forbearance in that you are able to temporarily suspend or reduce your monthly payments through the feature. However, there is one very important difference: the government will pay the ticking interest charges during an approved deferment.
Both forbearance and deferment are available for federal student loan borrowers assuming that all requirements are met. Eligible situations include being in school at least part-time, enrolled in an eligible graduate program, on active duty military service, or are unemployed, among others.
Some private loans offer forbearance options, but not all. You may also be able to require a partial-forbearance, where you pay new interest only and are able to temporarily suspend your principal balance payment for a period of time.
3. Apply for Income-Driven Repayment
What if you’re not enduring a temporary hardship but still find yourself struggling to cover the full student loan payment each month? In that case, you might want to utilize another feature of your federal student loans: income-driven repayment.
With income-driven repayment (IDR), you are able to adjust your monthly payment due according to your actual income. These plans are available for borrowers whose student loan debt is significant compared to their annual earnings.
IDR plans also take into account things such as:
- your income
- the cost of living in your area
- your family size
- the type of federal student loan(s) you hold
Keep in mind that IDR plans will generally extend your loan repayment out, meaning that it will take you longer to satisfy the debt. You could wind up paying more in interest over the life of the loan, though this may be worthwhile if you’re struggling to make those monthly payments.
In order to qualify, you’ll need to fill out the required paperwork at studentloans.gov. If approved, you will be granted a reduced payment amount based on your situation and your specific loans. You will also need to recertify annually, to continue receiving an IDR plan benefit.
Types of IDR Plans Available
Income-driven repayment plans come in a few different flavors. These include:
- Income-Based Repayment (IBR): Sets monthly repayment at 10% or 15% of borrowers’ discretionary income (depending on when the loan was disbursed) for those who have a high debt-to-income ratio, as well as potential loan balance forgiveness after paying your 20- or 25-year loan term on-time.
- Pay As You Earn (PAYE): Available to select post-2007 federal loan* borrowers, PAYE caps monthly payments at 10% of discretionary income and offers possible loan forgiveness after 20 years of on-time payments.
- Revised Pay As You Earn (REPAYE): Available to federal direct loan* borrowers regardless of when loans were taken out, REPAYE also caps monthly payments at 10% of discretionary income and offers possible loan forgiveness at 20 years (or 25 years for Grad PLUS loans)
- Income-Contingent Repayment (ICR): The best IDR option for borrowers with Parent PLUS loans, ICR plans set monthly repayment at 20% of discretionary income for 25 years.
*Does not include Parent PLUS loans, consolidation loans that covered previous Parent PLUS loans, Perkins loans, private loans, or federal loans in default.
| Available for private loans? | Available for Parent PLUS loans? | Payments based on discretionary income? | Monthly payment cap | Loan forgiveness after… | |
| Income-Based Repayment (IBR) | No | No | Yes | 10% or 15% | 20 or 25 years |
| Pay As You Earn (PAYE) | No | No | Yes | 10% | 20 years |
| Revised Pay As You Earn (REPAYE) | No | No | Yes | 10% | 20 years (25 years for Grad PLUS borrowers) |
| Income-Contingent Repayment (ICR) | No | Yes | Yes | 20% | 25 years |
4. See Who Else Could Foot the Bill
The best bill is the one you don’t have to pay, right? Of course, we don’t typically think of student loans as being bills we can escape. However, there are many instances where you may very well find yourself able to pass a portion of that debt onto someone else.
A few examples of ways you could get your student loan balance (or at least some of it) covered include:
- Employer benefits
- Loan balance forgiveness for income-driven repayment (IDR) plans
- Loan forgiveness for public service careers
Not all of these will be applicable to your student loan types. Plus, you will likely be limited as to how much can be forgiven (or covered). However, when it comes to knowing how to handle student loan debt, it’s key to remember that every penny you don’t have to pay back yourself is a penny saved.
Employer Loan Repayment Benefits
With employer loan repayment, your company may be willing to pay back your student loans up to a certain percentage or a dollar amount. This type of benefit usually doesn’t discriminate between private and federal student loans, offering one of the only options for debt “forgiveness” if you have private loan balances.
The IDR options mentioned above may forgive your remaining loan balances after you make 20-25 years of on-time payments, assuming that you qualify. However, these plans are only available for federal loan borrowers, and only one option (ICR) is offered to Parent PLUS borrowers.
Next, you have a variety of debt forgiveness options depending on your career and loan types. These include loan forgiveness programs for teachers, nurses, public servants, lawyers, doctors/other medical professionals, librarians, and military members.
Lastly, there are loan cancellations for special circ*mstances, such as becoming totally and permanently disabled, your school closing, and some instances of filing for bankruptcy. If you have federal Perkins loans, you may also qualify for Perkins loan cancellation and discharge.
5. Pay Off Your Loans for Less
What are your options for managing your student loan debt if you don’t qualify for forgiveness, cancellation, or other repayment programs? Well, a student loan refinance is always on the table, and can save tons over the course of your repayment.
By refinancing, borrowers can lower their interest rates, adjust monthly payments, change repayment terms, or even remove cosigners. However, snagging a lower interest rate — and saving thousands, if not tens of thousands, or dollars in the process — is usually the top motivator.
A private refinance loan, or refi, is used to essentially replace existing loans. Once a refi is complete, borrowers will have a new monthly payment on a new loan, with an entirely new repayment schedule and, ideally, a new (lower) interest rate.
Refinancing is usually the only option for private loan borrowers, though certain federal loan borrowers may also choose to go this route.
6. Plan for the Worst
No one likes to think about worst-case scenarios, but that sort of planning ahead is imperative in personal finance. If you have certain types of student loans, it’s even more important to prepare for the worst, in order to protect yourself and those you love most.
Part of managing your student loans might mean releasing co-signers from the debt. This can be done with a refinance, which would have multiple impacts, or possibly through a co-signer release. The latter, however, is hard to come by for most borrowers.
After releasing your cosigners, their credit will immediately improve. You can also snag better loan terms, such as a lower interest rate and/or lower monthly payments, with a refi. Most importantly, though, releasing your co-borrowers from your student loan debt will protect them if something were to happen to you.
If you were to pass away, your federal student loans would be discharged and cancelled. This is also the case for Parent PLUS loans, if you or the co-borrowing parent were to die.
However, this is not the case for private loans.
Private Student Loan Default
If either you or your co-borrower were to pass away, your loan could automatically default. The remaining borrower would be responsible for the entire debt balance due… immediately.
Yes, this means that if a parent cosigned on your private loan(s) and then passed away, you could find yourself on the hook for a full student loan balance that is due right away (and vice versa). Rather than risk this happening for either party, your best bet is to release your cosigner from the debt as soon as possible.
Additionally, you could also consider life insurance as part of your student loan debt management plan. By purchasing a policy that would cover your remaining balance in the case of your passing, you would protect your family and their finances.
8. Remember Your Loans Come Tax Time
Depending on where you are in your student loan journey, tax time might be great… or, it might be painful. Either way, it’s important to keep taxes in mind as you go about managing student loan debt throughout the year.
If your modified adjusted gross income is below a certain threshold (currently $80,000 for the 2019 tax year, or $165,000 for jointly filed returns), you will be able to deduct up to $2,500 in student loan interest payments come tax filing time. This reduction in your taxable income can be significant, saving you hundreds of dollars in income tax.
The Downside
On the flip side, you have the issue of loan forgiveness.
If you have a debt forgiven through loan discharge or a number of income-based programs — such as PAYE or REPAYE — you’ll probably be ecstatic to save thousands on your repayment. However, keep in mind that the debt you’ll be spared is considered taxable income.
Uncle Sam will happily show up with his hand out, come filing time. Depending on how much debt you were forgiven, this tax bill could be quite significant.
9. Find Ways to Pay Down Your Balances Even Faster
So, what do you do once you’ve exhausted all of the programs and loan benefits available to you? At that point, the best way to aggressively tackle your student loan debt is to double down the repayment efforts in every way possible.
For most borrowers, this means paying extra each month toward the principal balance. That allows you to save on interest as well as repay the debt faster than scheduled.
You can approach the “pay more toward your student loans” efforts in a few different ways.
- You could take on a side hustle, in order to earn more each month. Whatever you make goes toward your principal loan balance, allowing you to pay the debt down faster without actually adjusting your current budget.
- You could create a new household budget, which allocates more money to your loan debt. These funds will need to come from somewhere, of course. This means you might be forced to forgo some “fun” spending or put a little less in savings each month.
- If you’re up for the challenge or your budget is already bare bones, it might be time to work on lowering your living expenses. That might mean cutting the cord, carpooling into work, packing daily lunches, or even moving into a more affordable home — depending on how much you need to save. These efforts will free up some cash to put toward student loan debt. Additionally, though, it will also teach you how to live on less — a lesson that will stay with you long after your student loans are repaid.
In Summary
There’s no question about it: managing your student loan debt can be an exhausting, and often painful, journey. The balances you carry will impact your monthly cash flow, cost you money in interest, and even pose a risk to your parents or other co-signers.
However, there are many things you can do to not only save money on that student loan repayment, but also ensure that you and your loved ones are protected. With some smart planning and diligent effort, you can be free of your educational debt before you know it.
