If you’re struggling with too much student loan debt, you’re not alone. The good news is that there are resources to help you pay back both federal and private student loans.
Options for Paying Federal Student Loans
If you have too much student loan debt, examine all your options carefully. There are multiple ways to reduce your debt burden or monthly payment, but be aware, some may increase interest costs over the life of your loans.
Student Loan Consolidation
You can consolidate most existing federal loans through a Direct Consolidation Loan, which combines all your loans, creating one monthly payment. Consolidation can reduce your payment by allowing you to extend the repayment term up to 30 years (overall interest costs may increase). If you have loans other than Direct Loans, consolidation can also make your loans eligible for otherwise unavailable income-driven repayment plans.
Income-Driven Repayment
Income-driven repayment plans cap payments at a percentage of income—typically between 10% and 20% of your discretionary income, depending on the plan. Repayment terms last 20 or 25 years, with any remaining balance forgiven at the end of the term. Compare plans closely to determine which is best for you. Loans currently in default are not eligible for income-driven repayment.
Deferment or Forbearance
Both deferment and forbearance allow you to stop making payments temporarily. You must request a deferment or forbearance with your loan servicer and meet eligibility requirements to be granted one. Financial hardship, participation in certain programs (such as the military, AmeriCorps, or a graduate fellowship), and cancer treatment are circumstances that typically qualify. If you have certain types of loans, such as Subsidized Direct Loans, you will not be responsible for paying interest that accrues during deferment. However, on most federal loans, the interest that accrues will be added to your balance once the deferment ends. You’re responsible for paying interest on any loans in forbearance.
Federal Student Loan Forbearance During COVID-19
The coronavirus relief legislation initially paused payments until Sept. 30, 2020, by putting federal loans into administrative forbearance. It also set the interest rate on federal student loans to 0%. This relief has been extended until 60 days after court cases challenging Biden’s student loan forgiveness program are resolved or the Department of Education is allowed to move forward with the program. If the legal issues have not been resolved by June 30, 2023, payments will resume two months after that. The 0% interest rate and payment moratorium apply only to loans held by the federal government. Federal loans owned by private companies, such as some Perkins and FFELP loans, are not included in these protections.
Ways To Manage Private Student Loans
If you have private student loans, federal coronavirus relief efforts do not reduce your interest rate or entitle you to pause payments. If you have too much student loan debt and want help making payments, ask your loan servicers what types of assistance they offer.
Forbearance, deferment, and payment assistance: Private student loan servicers may offer forbearance, although it is important to ask your lender how interest is treated and whether there are fees associated with pausing payments. Loan servicers typically offer in-school deferment and other deferment options (such as active military duty, public service, or residency deferments). Some private loan servicers may offer payment-assistance options as well. Student loan refinancing: You may be able to refinance private student loans at a lower interest rate, to a lower monthly payment, or both. Refinancing involves securing a new loan with a private lender and using it to repay existing student loan debt. Typically, you’ll need good credit to qualify.
Budgeting for Student Loans
Budgeting may sound basic and not very exciting, but the simple act of reviewing your expenses and finding ones you can eliminate or reduce can dramatically impact your financial well-being. Review bank and credit card statements for items you can cut, and remember that sacrifices you make now may not need to be permanent. Reining in a few expenses is good practice and can empower you to accomplish other goals beyond paying back student loans, such as saving for a down payment on a home or for graduate school.
Financial Counseling
When facing too much student loan debt or any type of debt problem, consider reaching out to a credit counselor. Credit counselors are professionals that can evaluate your entire financial situation helping you make a budget and plan feasible. They may be available through credit unions, religious organizations, and nonprofit agencies. Only use an accredited counseling service. Accrediting organizations include the National Foundation for Credit Counseling and the Financial Counseling Association of America—either can assist you in getting the help you need.
