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How to manage student loan debt: 5 ways to find relief

Key takeaways

  1. Student loan debt can hurt your debt-to-income ratio, making it harder to qualify for mortgages, car loans, and credit cards while limiting funds for your financial goals

  2. Consider income-driven repayment plans, loan forgiveness programs, or deferment/forbearance for temporary financial hardship

  3. Use trusted resources and avoid scams. Beware of fraudulent companies promising immediate loan forgiveness in exchange for personal information

With college costs spiraling higher, it’s no wonder many adults in the United States currently owe student loan debt. This debt can have a serious impact on your life, making it difficult to qualify for a mortgage, car loan, or even credit cards. Also, major life events can get postponed, including home ownership, marriage, and children.

Thankfully, there are options for managing your student loan debt—including refinancing, loan consolidation and loan forgiveness programs. Let’s look at some of the ways you can get your finances back on solid ground.

Understanding the impact of student loan debt

When making regular student loan payments, you have less money to set aside for other goals, like a home down payment, retirement, or starting a family. Your personal budget is heavily weighted toward the debt side, limiting what’s left for you in the spending column.

When you have high debt compared to your income, also called a high debt-to-income ratio, you may find it difficult to qualify for other financing, such as a car loan, a mortgage, or credit cards. It might also mean paying higher interest rates on the loans you’re approved for. Having limited access to credit can weaken your credit history and hurt your credit score.

Landlords and service providers (like cell phone and internet services) may reject your applications because your credit score indicates that you might have trouble making monthly payments to them. And if you default because you can’t keep up with your student loan payments, that information will stay in your credit history for up to seven years.

5 options for managing student loan debt

The first step in learning how to manage student debt is understanding the current terms of your loan. Check the interest rate, the payoff timeline, the minimum monthly payment, and any potential fees for late payments or early payoffs.

Compare these same points when exploring your student loan repayment options — like the five below — to make sure you’re getting a better deal.

Income driver repayment plans

Income driver repayment plans for federal student loans base your monthly payment on your income. Payments could be $0 if you don’t have a job. Depending on your circumstances, your monthly payment can go no higher than 10% to 20% of your discretionary income. If you consistently make payments for 20 to 25 years, your balance could be forgiven.1

Three types of income-driven repayment plans are available:

  1. Pay As You Earn Repayment Plan, or PAYE Plan. You pay 10% of discretionary income, but not more than what you would pay under the 10-year Standard Repayment Plan

  2. Income-Based Repayment Plan, or IBR Plan. You pay 10% or 15% of your discretionary income, depending on when you received your first loans, but not more than what you would pay under the 10-year Standard Repayment Plan

  1. Income-Contingent Repayment Plan, or ICR Plan. You pay the lesser of 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income

  2. A fourth type of plan, the Saving on a Valuable Education Plan (SAVE), is currently unavailable. Check the Federal Student Aid website to receive updates

Loan forgiveness

Loan forgiveness programs allow your federal student loan debt to be discharged, forgiven, or even canceled in certain circumstances. These situations could include working in certain qualifying careers, being unable to work due to a disability, or if your school closed while you were enrolled or soon after you withdrew.3

Three of these programs are available:

  1. Public Service Loan Forgiveness (PSLF). To qualify, you must work full time for a U.S. federal, state, local, or tribal government or a qualifying not-for-profit organization. Additionally, you must have Direct Loans (or consolidate other federal student loans into a Direct Loan) and repay your loans under an income-driven repayment plan or a 10-year Standard Repayment Plan. A total of 120 qualifying monthly payments that need not be consecutive must also be made

  2. Teacher Loan Forgiveness. This program is open to people who teach full time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency and have a Direct Loan or Federal Family Education Loan (FFEL) Program loan. Loans of up to $17,500 may be forgiven

  3. Borrower Defense to Repayment. This program is designed for borrowers who have federal student loans and can demonstrate that they enrolled in a school or continued to attend a school based on misleading information from the school or other misconduct covered by the regulation and suffered a detriment that is of a nature and degree warranting a full discharge of their applicable federal loans

Consolidation

Consolidating your student loans enables you to combine multiple federal student loans into one loan, with one monthly payment. Consolidation might also reduce your interest rate or change your payback period.

Refinancing

Refinancing your student loans gives you an opportunity to change your interest rate and terms, such as extending your payback period to reduce your monthly payment or switching from a variable interest rate to a fixed interest rate.

However, refinancing your student loans into another loan type means you will lose federal repayment protections, like deferment and forbearance.

Loan deferment or forbearance programs

Loan deferment and forbearance allow you to temporarily stop or reduce your student loan payments in the event of an economic hardship or cancer treatment. Depending on the plan and your loan, you may have to qualify for these options, and interest may still add up while you’re not making payments.

Student loan relief resources

Here are some resources to learn more about your student loan relief options and find help for taking the next steps:

  1. Your student loan servicer

  2. For federal government loans, log in to your My Federal Student Aid account or contact your federal student loan servicer. For private loans, ask your lender

  3. Manage Loans section of the Federal Student Aid website

  1. The Consumer Financial Protection Bureau

  2. The Institute of Student Loan Advisors

  3. Nonprofit credit counseling agencies. Find a counselor who can help you develop and implement a personalized repayment plan, for a fee, at the National Foundation for Credit Counseling

Be aware that there are fraudulent debt-relief companies out there with promises of immediate loan forgiveness and requests for personal information, such as your Social Security number or your Federal Student Aid ID. Remember, if an offer sounds too good to be true, it's probably a scam.

Enjoy the payoff

Finding student loan relief can take time and effort. But the payoff could be immense — potentially freeing up funds for other needs and goals, keeping your credit history intact and putting you on a better footing for the future.

This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

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