How to Reduce Your Student Loan Debt in 5 Easy Ways – Forbes Advisor

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Even with the federal student loan forbearance extension, you might still be worried about paying off your student loan debt. Whether you need to repay private student loans or want to get a head start on resuming federal student loan repayments, there are several ways to reduce your student debt now.

How to reduce your student loan debt

If you’re living paycheck to paycheck or your student loans are keeping you from achieving other goals, here are five ways to take action today.

1. Sign up for autopay

This is probably one of the easiest ways to reduce your student debt. Many student lenders offer a discount if you set up automatic payments for your student loans. This gives you a discount on the interest rate, usually 0.25%, and could reduce the total amount you repay. Although it won’t make a big difference in the short term, it could save you a lot over the life of your loan.

Pay more than the minimum to get even more for your money. Some lenders limit your monthly automatic payments to the minimum amount while others allow you to pay any amount you want. If your lender allows you to pay more than the minimum balance, you can speed up your payment schedule when you pay more than the minimum amount.

2. Pay off the interest before it is capitalized

Capitalized interest on student loans is the unpaid interest that is added to your loan balance. For most student loans, interest accrues while you’re in school, whether or not you make payments during that time. If you don’t make payments while in school, accrued interest will eventually be added to your balance, increasing the total amount owed. So, if possible, pay what you can.

Making payments while you’re still in school can save you money over time. If you commit to making small monthly payments before you graduate, even if it’s just interest, you’ll save even more when you graduate.

3. Pursue student loan forgiveness or repayment programs

Some other options to consider are the Public Service Loan Forgiveness (PSLF) and Income Contingent Repayment (IDR) plans:

  • Public service loan forgiveness: PSLF is a federal pardon program for those with a career in the public sector. You’ll make 120 qualifying payments while working for an eligible employer, such as a nonprofit, government agency, or public school. Once you have met these requirements, any remaining balance is forfeited.
  • Income Oriented Repayment Plans: Most federal student loans are also eligible for IDR plans. These plans calculate your monthly payments based on your household income and family size. You’ll make monthly payments for 20 or 25 years, depending on your plan, and then any remaining balance will be canceled.

IDR plans require a bit more maintenance. You’ll update your income each year or when you experience a major life change (like losing a job or changing household size). If you’re not working, your payments can drop to $0 per month without any penalties or fees. This is a great option for borrowers who work in lower paying fields and who already have tight budgets.

4. Consider refinancing a student loan

If you have private student loans, a mix of private and federal loans, or want to take advantage of lower interest rates, refinancing your student loans might be a helpful option. Refinancing involves taking out a new loan to pay off your existing student loans. Then you will make a monthly payment to your new private lender.

When you refinance, you do so with a private lender. This means that if you have federal student loans, you will lose all federal protections, such as deferment, forbearance, income-based repayment plans, and PSLF. Carefully consider the pros and cons of refinancing, especially if you have federal loans.

Refinancing does not always guarantee a lower interest rate. Only consider refinancing if you are not eligible for federal rebate programs and have strong enough credit to qualify for a lower interest rate than you are currently paying.

5. Seek help from an employer

Some employers want to help employees pay off student loan debt, so they encourage it. Help for employers comes in different forms and can vary from company to company. You may be able to get monthly payments to match your student debt, up to a certain amount each year or in total over the term of your loans.

Check with your employer to see if they have programs like this. If they don’t currently, ask if they would consider offering student loan assistance. You can also inquire about this benefit with potential employers if you are looking for a job.

What is the average student loan debt?

The average student loan debt for 2020 graduates was $28,400, according to the College Board. And that number changes drastically depending on the type of school, level of education completed, public school, and type of student loan (federal or private):

  • Public school: 55% of bachelor’s degree holders graduate from a public school with student debt, averaging $26,700 per student
  • Private school: 57% of bachelor’s degree graduates graduated from a private school with student debt, averaging $33,600 per student

But how much student loan debt is too high?

The typical monthly student loan payment is between $200 and $299, according to the Federal Reserve. But overall, the amount of student debt that’s too high for you might be manageable for someone else, meaning that everyone’s debt threshold is relative to their own income, obligations finances and his experiences.

If you’re struggling to make ends meet because a significant portion of your income goes to paying off student loans, you may have too much student loan debt. So, following the tips above can be a smart move to make your student loans more manageable.

Taking small steps now to reduce the amount you owe can really add up over time. See which steps work with your budget and timeline, and don’t be afraid to try something new if something isn’t working for you.

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