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Strategies for Paying Off Student Loans

by Gerri Detweiler

Strategies for Paying Off Student Loans

Student loans often help make it possible to earn a college degree, which over time can help you earn more. That’s if things go well.

But sometimes things don’t go as planned. You may have to drop out of school before you finish your studies. You may not land a good-paying job after school. Or you may discover you’ve borrowed more than you can pay back. In fact, two-thirds of college seniors who graduated in 2011 owed money for their educations, with an average student loan debt of $26,600 per borrower, according to the Project on Student Debt.

Besides moving back in with your parents (if that’s even an option) and living off PB&J sandwiches while and putting every penny you can toward your debt, what are your options?

Fortunately, there are a variety of student loan repayment programs that may help you whittle down — or even wipe out — debt. They include:

1. Student Loan Forgiveness

A number of programs allow you to get some or all of your debt canceled if you qualify. Examples include serving in the Peace Corps or AmeriCorps; programs that allow a variety of healthcare professionals from doctors and nurses to dental hygienists and mental health workers to get a significant amount of their debt forgiven if they are willing to serve at least two years in an underserved community.

Teachers may similarly be able to get some student loan debt forgiven if they work in underserved communities — especially if they teach math or science. In addition, there are individual programs that may also help with student debt. For example, Yale Law School and New York University offer programs that allow some law school graduates who work in public service to get some of their loans canceled.

And members of the National Guard and military may be eligible for programs like the National Call to Service program which pays a cash bonus of $5,000 and up to $18,000 in student loan repayment. Finally, those who are totally and permanently disabled may also apply to have their federal loans discharged.

It may take you a while to find out whether you’re eligible for such a program. And if you do qualify, you may be taxed on the forgiven debt as if it were income. But it can still be worth the time and energy (and taxes) to wipe out these debts, especially when you consider you aren’t just eliminating the debt, but also the interest that would accrue on the balance in the future.

2. Income-Based Repayment

What happens if you don’t qualify one of those programs but your monthly payments on your loans are more than you can pay? You may want to look into the Income-based Repayment (IBR) Program. (The newer version of that program is called Pay As You Earn.) With these programs, you may be eligible for lower monthly payments on your federal loans, based on your income. If there is a balance remaining after you’ve made payments for a certain number of years (10, 20 or 25) it will be forgiven.

The length of time you’ll be required to make payments before the balance is forgiven depends on the type of work you do. If your job qualifies as a public service job (which includes certain law enforcement and teaching jobs, for example) then you may be able to get your balance forgiven after 10 years.

Also helpful: paying back your loan under IBR or PAYE does not hurt your credit scores as long as you make the reduced payments on time.

3. Student Loan Consolidation

It can be frustrating as a student loan borrower to learn that your options for refinancing these loans are limited. Unlike other types of consumer loans, which can be refinanced if interest rates drop (if you qualify), federal student loans are not as flexible. In fact, you generally get only one shot at this.

To refinance student loans you actually consolidate them. Some of the potential benefits of consolidation include:

  • One monthly payment instead of many
  • Lower monthly payments, by extending the loan term to up to 30 years
  • Changing from a variable-rate loan to a fixed-rate loan
  • Possible eligibility for other repayment plans such as IBR

However, there can be drawbacks as well. They include:

  • More interest paid over time if the loan term gets longer
  • Possible loss of valuable benefits such as interest-rate reductions or loan cancellation benefits, depending on which types of loans you consolidate.

How do you consolidate student loans? The Department of Education offers a helpful checklist for borrowers who are thinking of consolidating. If you decide to move ahead anyway, you will fill out a free application at the Department of Education website.

Student Loans and Your Credit Scores

Typically student loans won’t hurt your credit scores if they are paid on time, and they can often help your scores. If you fall behind, however, those late payments can cause your credit scores to drop significantly. For that reason, it is especially important to try to repay your student loans.

You can monitor your credit score once a month for free using Credit.com’s Credit Report Card. That way, you can see for yourself how student loan debt affects your scores.


  • Steve

    What about parents who cosigned for these loans where is the relief for them?

    • Brian Bennett

      Why should anyone get financial relief? They signed loan papers willingly; no one forced them to do so. Getting the loan was a choice they all made.

      • alex

        The relief is working to the benefit of the D.O.E . You can’t expect people to [magically come up with the money]. If they don’t have a decent paying job or a job at all, then its obviously hard to come up with $200-$1000 a month. In pretty much any other type of situation where one would take out a loan, there is collateral that can be taken to make up for non payment, but you can’t repo an education. This isnt an issue of a small % of students not paying their loans. We are talking about close to a trillion dollars in unpaid student loans and that number is constantly growing because we cant stop giving student loans unless we want to fall behind in education as a country. So instead the D.O.E came up with programs that would allow people to consolidate their loans andd lower their payments based on their income and dependents. This way the D.O.E can have some money coming in. Did you have a better solution?

      • Brian Teal

        Except when they get stage 3c cancer, lose their job, and their child has special needs and a life threatening disease. Sorry, I shouldn’t have signed those papers, should I? I should have known all that would happen. I guess I’m just a greedy liberal.

    • Shelly

      Most parents that cosign are released have 1-2 years of on time payments. Especially on private. There’s also options to re-finance student loans to remove the parents after the student has sufficient credit.

      • Toni Derbort

        That is so not true! I have been making payments as well as my son faithfully every month for five years. Can’t get my name off!

  • alex

    Thats not true at all…. The programs for doctors and teachers are the exact same programs that are available to ANYONE with federal student loans. So anyone can consolidate and lower their payment based on income and dependents, but the only difference for public service workers is the amount of consecutive monthly payments before being forgiven. So instead of 300 payments , they are only required to make 120. Know your facts before you open your mouth please

    • Mom

      Yeah, they play a lot of games with that, according to my daughter. (“The paperwork wasn’t filled out properly, don’t send THAT kind of check, etc.”) Unless they’ve really changed, it’s like owing a loan shark or the IRS. I finally paid off MY loans, PLUS loans, (they are the parent loans) by getting another part-time job and using that money to pay the ($16,000.00) off as quickly as I possibly could. That was “back in the day” when the interest rates were 9%+,too! Never again.

  • NY NBicky

    welllll…..I was disabled by 33 operations and can NO LONGER work…let alone feed myself….How can I pay anything?

    • Latina

      Your student loans can be forgiven and wiped clean if you are disabled. Call the lender and make the necessary arrangements. This is true even if you receive state disability, LTD payments from a curent or past employer, or have a doctor certify the disability. Just call the lender and ask some questions.

      • http://www.Credit.com/ Gerri Detweiler

        You and Lili are right – between loan forgiveness and bankruptcy there should be a solution for NY NBicky. The only caution I would give is that there could be a tax liability for student loan debt cancelled due to disability, but not if the loans are discharged in bankruptcy. We wrote about that here: student loan disability

        • Susy

          There are two things you cannot file in any type of bankruptcy and they are: Child Support and Student Loans. If someone is disabled and not receiving any earned income they can call their server and ask to be put on the IBR program. They will send you a form. The form tells you if you don’t have any earned income to sign the form and send it back. You don’t have to fill out anything just sign it. It will not hurt your credit or your credit score.

          • http://www.Credit.com/ Gerri Detweiler

            Some student loans are dischargeable in bankruptcy. Not always easy but it is sometimes possible. And agreed that IBR or Pay As You Earn can be very helpful for some students.

  • http://www.Credit.com/ Gerri Detweiler

    I agree. Your best option at this point is to consult with a bankruptcy attorney with experience in student loans to find out what your options are.

  • http://www.Credit.com/ Gerri Detweiler

    Unfortunately Parent PLUS loans aren’t eligible for the same programs as student loans. And while you may be able to consolidate them together you may not want to. As the StudentLoanBorrowerAssistance.org website explains:

    “Parent PLUS borrowers who also have other federal student loans and choose to consolidate with Direct Loans will find that the PLUS loan taints the entire consolidation loan and will mean that they will not be eligible to repay the consolidation loan using IBR. If they wish to consolidate, parent PLUS borrowers may exclude the PLUS loans from the consolidation and pay them separately. These borrowers should also be able to consolidate and choose ICR.”

  • Kathleen AOM

    I am a parent and as I have 4 children – now young adults – 3 college grads, with the recent grad heading to law school and one still an undergrad. I can tell you that we tried to save for their college educations — we managed to save about 5K for each. That turned out to be a drop in the bucket for what it costs to attend even a public university! In IL, our public universities are now $18-30K
    yearly. Very few who raise a family on normal and decent-sized middle
    class salaries (my husband and I both work for municipal entities in
    professions of public service – so we make good money, never intending nor
    expecting, of course, to become millionaires, etc.), can afford to save
    that kind of money and feed and clothe 4 children. To make good on loans and equity loans we took, we will probably have to work until we are 100!

    When we first began the college search in 2000 for our oldest child, our flagship public university cost approximately 10-12K yearly. With some sacrifice, we fully expected we could foot that bill. By the time he actually graduated high school and
    was admitted, suddenly the costs began to soar. Why? Think about this: Our banks suddenly went from offering 5% interest on regular savings accounts to a mere whatever it is now .001%? Bank CDs, which used to offer 10-12% interest on money deposited for a given amount of time, now offer 1.05% on $10K deposit
    over 48 months? Why? I am no economist or financial expert, but I
    do have a very simple theory. I also have a more complicated theory, but I do
    not intend to get into politics here!

    It seems to me that the 2009 recession/depression and lost reasonable interest rates on almost any kind of loan, credit cards, etc as well as the lost reasonable interest rates on savings, etc. — has one aim —- to increase bank and financial profit margins to ensure their CEOs and upper financial management keep the exorbitant salaries they now receive and that these salaries annually increase. Tell me, what does one do with a salary of $25 million or more a year?
    CEO salaries in most corporations, not just financial, have risen at
    ridiculous rates to the point where they soar way past reasonable and/or excellent compensation! If this is not checked, soon our country will return to the scenario
    prevalent 100 years ago, only the few elite immensely wealthy upper class
    will be able to attend college!

    When I graduated college in 1980, I graduated with $1500 in student loans. Young teachers I work with today are going into public service public school teaching jobs
    with $40-60K in student loan debt, because neither they nor their families could possibly save $80-120K+ for a college education and they have dreamed of being teachers all their young lives. Should they have forgone college until they could save $80-100+ thousand dollars to finish 4 years of college? Where will our teachers and other professionals come from? And although these young teachers will receive some loan forgiveness, it still only taps the surface of their debts, which are continually accruing interest!

    In my youth, I had returned from studying away at college to live at home, and was able to finish at a public university and pay my tuition, books, and other expenses
    easily with my part-time job. Today’s students cannot do this and many
    parents find the prospect of signing and undertaking massive debt, when
    retirement should be 5-10 years away, to send their children to college –
    prohibitive for many reasons. One of my children is about to enter law
    school in the fall; she will be in over $250K debt with interest accruing all
    the while she is studying law! Hopefully she will be able to go either the public service route for loan forgiveness or find a job to pay her enough to pay off that loan before she is 80! This is fulfilling her dreams since she was a little girl
    and we will try to support her as much as we can — I am confident in her
    abilities to do well, but should our competent qualified young people have to
    come out of college burdened with this sort of debt?

    • Michael Biancanello

      I share your pain. At 250k+, law school is a mistake.

  • olivia60

    you lost my comment

  • Jon

    Possibly the Federal Government could have the interest on these loans based on just the prime interest rate (~1%) instead of trying to make it a highly profitable concern (~4-9%) to get the money back. This could be offered to those having loans as a one time opportunity and if they don’t take it or default, they lose.


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