Your strategy will depend on what kinds of student loans you've taken out, what interest rates you pay, and how much extra money you can spare.
Student loan debt is huge. And if you’re not careful (or just unlucky) your debt load can just keep growing and swallowing up your future prospects, like The Blob from The Blob (1958) or The Blob from The Blob (1988).
Like the issue of medical debt, fixing the student debt crisis is going to take a lot more than just individual action. It’ll require huge structural shifts and legislation.
But we only have a single blog right now, so we’ll just focus on tips from our experts that will hopefully help you manage your personal student debt situation.
Basic accounting and budgeting.
Before trying any fancy stuff, you’ll want to get the basics out of the way.
“First thing is first when it comes to student loans, how much are you paying every month and can you pay more?” inquired Josh Hastings, founder of Money Life Wax.
“Having a positive monthly income to tackle student loans quicker is a must. There are several ways to easily increase your monthly income, from cutting the cable to reducing gym memberships, realizing every dollar counts is vital.
“Managing how money goes to entertainment and food is an area where millennials especially can really direct more money to their student loans.”
And when it comes to directing that money, you’ll want to understand your repayment options.
Federal student loans have several options.
When thinking about your student loan payment options, it’s important to know if (or what portion of) your student loans are federal or private.
“The best way to manage your student loan debt is understanding all your repayment options,” bankruptcy attorney Ashley F. Morgan advised. “Federal student loan payments will automatically be based on a standard ten-year repayment plan. However, there are payment options for federal loans that spread out your payments over more years or base the payments on your income.
“Based on income, you could qualify to have your student loan payments capped at a percentage of your discretionary income. If your income is low enough, your payment could be $0 per month. However, you do have to reapply for the income-driven programs every year and submit documentation of your current income so the payment can be recalculated.
“After payments for 20-25 years (depending on the plan) on an income-driven plan, the remaining balance is forgiven. The downside to these income-based programs is that currently any remaining debt that is forgiven will be taxed as income.”
Private student loans have … fewer options.
As for student loans that you’ve taken out from a private lender, here’s what Student Loan Lawyer Joshua Cohen had to say about those:
“Private loans are much harder to work with. If you can’t afford the loan, you’re stuck with the eventuality of defaulting, suffering credit damage, and could possibly be sued. If the payment is affordable, do your best to stick with it.
If you have excellent credit and good income, a refinance might work to your benefit to lower the interest rate and obtain a more affordable payment. However, for those who can’t afford the current payment, you’re in a catch-22. You don’t earn enough to refinance to a lower interest rate.
“If you have a co-signer but still can’t afford the loan, a chapter 13 bankruptcy may be a smart way to protect your co-signer and give you time to pay down the loan. It’s not an optimal solution, but for some there is no other option.”
Prioritize payments and consider consolidation.
Private loans are also very likely to have higher interest rates. It’s another important factor to take into account when determining which payments to prioritize.
“I work on paying off the loans with the highest interest rates first,” explained personal finance writer and student loan expert Ashley Chorpenning. “Not only does this lower my weighted rate but it makes me feel as though I am making progress.”
Chorpenning also advised looking into turning multiple loans into a smaller number of loans: “All of my loans are in one place but if you have loans with multiple lenders, you may want to consolidate your loans. This way you can have all your loans organized in one place. This will not lower your rate but it will help you stay organized.”
But it isn’t always ideal.
“Consolidating is not always the best idea and truly depends on how the loans were originally distributed,” added Hastings.
“For example, if the borrower has 10 small loans, sometimes consolidating will actually hurt. Since the interest is determined by the principal balance, a larger principal balance can mean more in interest. Losing the luxury to individually attack loans, which in turn frees up more cash flow, is lost with consolidating.”
Regardless, as Chorpenning said, consolidating won’t lower your rates. But what might have a chance of lowering your rate?
If the situation is right, refinance.
Is refinancing a magic tool to lower your student loan rates? Well… not exactly. But it can be helpful in the right circumstances.
“Refinancing student loans is popular right now,” Morgan told us. “It can help you save some money on interest. This can often be a good option for private student loans, but I caution people about refinancing federal student loans.
“One major issue to refinancing any federal student loans is that you would be losing the protections of income-based repayments and temporary stays in payments. If in the future you lose your job or cannot make a payment (sickness, illness, major expenses, etc.) you can contact the federal student loan lenders for a deferment or a zero payment until you get a better situation.
“This leaves your credit in good standing. If you have private loans through a refinance, the lenders rarely would allow you to miss a payment without issues or reporting to credit bureaus.”
Cohen echoed Morgan’s advice: “Is it feasible to renegotiate or refinance? Private loans can be refinanced, but only with great credit and income. This can get a lower interest rate which allows the loan to be more affordable and/or paid off quicker.
“Refinancing federal loans to get a better interest rate can only be achieved by converting the loan to a private student loan, which rarely makes sense. The borrower loses all of the federal protections and benefits when they do this.”
Even if you are able to get a better rate, that rate will be more than zero, so you’ll still have to work out the payment strategy that works best for you.
Pick a strategy and then stick with it.
Hastings offered these two options to consider:
“There are two primary strategies when it comes to attacking student loans. A simple strategy is just to start with the lowest balance, decide on an extra amount to pay towards it monthly, and pay it off as fast as possible. Wash rinse repeat.
“A different strategy would actually be to attack the loan with the highest interest rate first, then move down the ladder. Typically, they usually are pretty even when it is all said and done.”
Whatever strategy you pick, it won’t be fun. But hopefully this advice will make it a little less painful.
During college, Joshua Cohen (@studentloanlaw) got a job with the financial aid office as part of a work-study program. There, he saw the dark side of the college financial aid system. He decided that it was unacceptable for college students to be put into student loan debt slavery and kept in the dark about their options for freedom. Now he helps people who struggle with student loan problems.
Josh Hastings is a former High School Athletic Director at the secondary level who shifted his focus in 2016 to focus more effort on his entrepreneur endeavors. In 2017 he founded MoneyLifeWax.com (@moneylifewax), a personal finance site dedicated to helping millennials with student loans. With an emphasis on money and finance behavior, Josh started Money Life Wax to help millennials realize there are other ways to make money and be happy in the 21st century.
Ashley F. Morgan (@AFM_Law) is licensed to practice law in the Commonwealth of Virginia. She is also authorized and admitted to practice law in the United States District Court and the United States Bankruptcy Court for the Eastern District of Virginia. She has dedicated the majority of her legal career helping clients file Chapter 7, 11, and 13 in the Eastern District of Virginia. Ashley works with both individual and business debtors to find the best solution to their debt problems. She is regularly in bankruptcy court in Alexandria, VA or attending 341s with our clients.
Andrew Tavin is a writer, comedian, and a full-time content manager for OppLoans. He graduated with a BFA in TV Writing from Tisch School of the Arts in New York City, worked as a writer for BrainPOP, and created a branded comedy video series for the National Retail Federation called “Interview Day.” He performs around the country and his writing has also appeared on Collegehumor, Funny or Die, and Sparklife.
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