12 Tips to Effectively Manage Student Loan Debt

If you’re a college graduate, you probably have a fair share of student loan debt. Whether you’ve been out of school for years or are about to earn that diploma, there are several ways to handle your student loan debt so you don’t feel like you’re drowning.

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It doesn’t matter if making that monthly payment is a minor headache or a true burden — ignoring the problem is never the right answer. Instead, take control of your student loans by following these tips for keeping them on track, regardless of where you are in the repayment process.

12 Strategies for Managing Student Loan Debt

Graduation marks the beginning of a new chapter. However, along with the excitement often comes the realization of impending student loan repayments. The good news is that managing this obligation doesn’t have to be daunting.

This guide will walk you through the necessary steps – from understanding your loan terms, making the most of grace periods, opting for income-driven repayment plans, to creating a realistic budget.

1. Understand Your Loan Terms

One of the first things you should do as you approach graduation (or even well afterward, if you’ve never done it) is to fully understand your loan terms.

Start by identifying your lender. For federal loans, you can find yours in the National Student Loan Data System. For private loans, you can probably rely on your lender contacting you, but in case you can’t find the information, simply check your credit report.

All of your outstanding loans and servicers will be listed so you can find out your specific loan information. This is also helpful if your loan has been sold to a different servicer from the original. To get your credit report, all you have to do is go to AnnualCreditReport.com.

Enter your Social Security number and answer a few security questions, and you can download a copy on the same day. From there you’ll want to confirm your interest rate on the loan, how long the repayment period lasts, and what your monthly payment amounts to.

2. Make Payments During Your Grace Period

Many student loans, particularly federal student loans, offer a grace period after graduation. You can wait a predetermined length of time before making loan payments. Depending on the type of loan, interest may or may not begin accumulating during this time.

Grace periods typically last six months and give you time to find a job. They let you get settled into your new life after college without the extra burden of worrying about your student loan debt right away. But if you already have a job and can afford it, get into the practice of making those monthly payments right away.

You can put a sizeable notch into your overall balance, saving you money on interest in the long run. Think about it: if your projected monthly payment is $300 and you start paying that amount right away during your six-month grace period, that would total an additional $1,800. That’s a huge amount to knock off your principal balance.

If your interest isn’t subsidized by a federal student loan, you’re preventing an even larger principal from accumulating. Even if your interest is subsidized during the grace period, all of those payments can go directly towards your principal balance, not your interest.

See also: 15 Ways to Pay Off Student Loans Faster

3. Enroll in an Income-Driven Repayment Plan

Income-driven repayment plans are repayment plans for federal student loans that base the borrower’s monthly payment amount on their income and family size. These plans are designed to make the repayment more manageable for of student loan borrowers who may have a low income or a high debt-to-income ratio.

There are several types of income-driven repayment plans, including:

  • Income-Based Repayment (IBR) – This plan sets your monthly payment at a percentage of your discretionary income (typically 15%).
  • Pay As You Earn (PAYE) – This plan sets your monthly payment at a percentage of your discretionary income (typically 10%).
  • Revised Pay As You Earn (REPAYE) – This plan sets your monthly payment at a percentage of your discretionary income (typically 10%).
  • Income-Contingent Repayment (ICR) – This plan sets your monthly payment at the lesser of either a percentage of your discretionary income (typically 20%) or what your payments would be on a fixed payment plan over a 12-year term.

To be eligible for an income-driven repayment plan, you must have a partial financial hardship. This means that the amount you would pay on your loans under a standard repayment plan is more than the amount you would pay under an income-driven repayment plan.

If you are considering an income-driven repayment plan, remember to carefully consider the terms and conditions of each plan and how they may affect your long-term financial goals. It may also be helpful to consult a financial advisor or a student loan repayment specialist.

4. Make a Budget

Taking care of your student loan payments is a big deal, but it’s really just one piece of a much larger puzzle. To make sure you’ve got all of your finances under control, take the time to sit down and make a budget. Start by listing out all of your monthly financial responsibilities.

The most important items are your rent, student loans, car payments, and any other debt obligation you have. Then, set a realistic, yet frugal budget for discretionary spending, like your groceries, clothing, and entertainment. Furthermore, be sure to set aside money for savings.

You’ll want an emergency fund of at least $1,000. Many experts also recommend saving up a few months of expenses in case you lose your job. After you’ve got the basics covered, consider contributing to a retirement fund, and then think about your other savings goals.

Want to buy a condo? Or backpack through South America? Map out both your long-term and short-term savings goals. It seems like a lot of work, but if you maintain a frugal lifestyle right from the beginning, you’ll build a strong financial foundation that you’ll benefit from for years.

5. Pay Down Other Balances

In an ideal world, you’ll graduate from college with little to no debt — maybe just a small amount of student loan debt that comes with a low-interest rate. But in reality, it’s quite possible you have other debts as well. They might include credit card debt or a car payment.

You can’t just focus on one or the other. Once you take on debt, they’re all equally important to pay down. If you don’t, your credit score will be hurt for years to come. When you’re creating your budget, make sure you include at least the minimum payment on each of your debt balances.

For credit card debt, try to be as aggressive as possible because even by paying the minimum amount, you’re accumulating lots of interest that could potentially take years to pay off. Look at all of your debt holistically — including student loans — to determine the best strategy for paying off those balances.

Consider using the debt snowball or debt avalanche method to help you pay off debt more quickly.

6. Avoid New Debt

If you’re worried about how you’re going to pay off your student loans or are simply annoyed at the money you spend on paying them each month, then do your best to follow this one piece of advice: avoid taking on any new debt.

It can be tempting to charge living expenses or even the cost of going out when you’re strapped for cash. But if you can’t afford it this month, it’s unlikely you’re going to be able to afford it next month.

You’re really just setting yourself up to feel an even heavier burden on your other financial commitments as time wears on. Instead, focus on living frugally so you can get your student loans and other current obligations taken care of without accumulating extra debt along the way.

7. Increase Your Income

When it comes down to it, you just might have to make more money to pay your student debt on top of all of your other expenses each month. That may seem hard to pull off, especially if you’re in an entry-level job just after college.

You can certainly ask for a raise or extra hours, but if that’s not possible (or you’re shot down in negotiations), there are other ways to earn extra money.

Ask co-workers if they need a babysitter or dog sitter. Find things to sell on eBay or Craigslist. Offer tutoring services in a subject you excelled in during school. Once you get creative, you’ll think of plenty of ways to make a few extra dollars so that your student loans don’t completely drain your wallet.

8. Take Advantage of Tax Deductions

A quick tip when it comes time to do your taxes is to deduct the interest you pay on your student loans. You should receive a 1098-E form from your loan servicer at the beginning of the calendar year. It denotes how much of your payments from the previous year went towards interest.

You can enter up to $2,500 of that amount as a tax deduction. That will save you at least a bit of money owed to Uncle Sam.

9. Lower Your Interest Rate

Federal loan interest rates are fixed, so they can’t be refinanced to a lower rate. Historically, they have been the most competitive rates around, so it hasn’t been worth looking at private lenders.

However, some student loan refinancing companies are streamlining services in an attempt to become competitive with federal student loan rates. Whether you have federal or private loans, it’s worth looking at other rates to potentially refinance.

This is especially true if your credit score has improved since you were approved for the original loan. And your score probably has gone up since you’ve established a credit history and made timely payments on your student loans.

Another way to qualify for a lower rate is to sign up with your lender to have your monthly balance automatically debited from your bank account. You can often receive a quarter-point reduction in your interest rate by making this one simple switch.

10. Don’t Stop Making Payments

No matter what kind of dire financial straits you’re in, never stop making your payments. Talk to your lender to see if you can refinance the loan to lower your monthly payments. With federal student loans, you can often defer the loan or switch to an income-based repayment plan until you’re back on your feet.

Your student loans are probably going to stick with you for some time. Don’t be disheartened by the monthly payments that never seem to end. Instead, understand how to handle your loans effectively so they don’t take over your life. Once you know the in’s and out’s of how they work, you might even be able to pay them off early.

11. Explore Student Loan Forgiveness

Student loan forgiveness is a program that allows borrowers to have their remaining student loan balance forgiven or cancelled under certain circumstances. The specific requirements for student loan forgiveness vary depending on the program. However, they typically involve making a certain number of on-time monthly payments while working in a specific occupation or for a qualifying employer.

There are several types of student loan forgiveness programs, including:

  1. Public Service Loan Forgiveness (PSLF) – This program forgives the remaining balance on Direct Loans for borrowers who work full-time for a government or nonprofit organization and make 120 qualifying monthly payments while working in a public service job.
  2. Teacher Loan Forgiveness – This program forgives a portion of Direct Loans or Federal Stafford Loans for teachers who teach full-time for five complete and consecutive academic years in a low-income school or educational service agency.
  3. Perkins Loan Cancellation and Discharge – This program forgives a portion of Federal Perkins Loans for borrowers who work in certain occupations, such as teaching, law enforcement, and nursing.
  4. Income-Driven Repayment Plan Forgiveness – Some income-driven repayment plans, such as Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE), offer loan forgiveness after a certain number of payments have been made (typically 20 or 25 years).

You may be eligible for these programs, depending on your career path. Many public service jobs like teachers, police officers, social workers, and medical professionals qualify to have some or all of their loans forgiven if they serve for a certain number of years.

Some volunteer opportunities offer the same benefit, including Peace Corps, Teach for America, VISTA, and AmeriCorps.

However, student loan forgiveness is not available for all types of student loans. For example, private student loans are not eligible. Additionally, the specific requirements for each program can be complex. To find out if you may be eligible, visit the Federal Student Aid website or speak with a student loan repayment specialist.

12. Student Loan Consolidation

Student loan consolidation is a process in which multiple student loans are combined into a single loan with a single monthly payment. Consolidation can make it easier to manage your student loan debt by simplifying the repayment process and potentially lowering your monthly payments.

There are two main types of student loan consolidation: federal consolidation and private consolidation.

Federal consolidation combines multiple federal student loans into a single Direct Consolidation Loan. This may simplify repayment and lower monthly payments by choosing an income-driven repayment plan. It is available to borrowers with Direct Loans, FFELs, and Perkins Loans.

Private consolidation, or student loan refinancing, combines multiple student loans into one loan with a private lender. It may lower interest rates and monthly payments, but is only for private student loans. It may also eliminate some federal student loan benefits, such as income-driven repayment or loan forgiveness.

What is the average student loan debt?

According to the most recent data, the outstanding balance of federal student loans is $1.617 trillion, which accounts for 92.7% of all student loan debt in the United States. This debt is held by 42.8 million borrowers.

The average balance of federal student loans is $37,787, but when private student loan debt is included, the average total balance rises to an estimated $40,780.

These figures highlight the significant burden of student loan debt on a large portion of the population and the importance of finding ways to manage and pay off this debt.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.