Student Loan Guide

Creating a Better Plan for Managing Student Loans as You Pay Down Debt

The situation: Currently you are repaying student loans. You are making all your payments but wish to consider one of the following objectives:

• Create a comprehensive repayment plan to better manage the debt

• Reduce your monthly payment burden

• Pay off student loan debt faster

What this page offers: An outline of the steps and resources needed to review your current repayment situation and create a comprehensive repayment plan that fits your needs.

Do student loan payments represent a major expense in your monthly budget? If so, are you making the payments easily or feeling financially stretched even if you are coping? Have you created a comprehensive repayment plan to help you pay off your loans as quickly and cost-effectively as possible? Even if you already have a plan, is it time to review your options in light of your current financial situation?

The following steps and tools can help you find the best answer to any of these questions and more. Whether you are working in your first job after graduation or are established in your chosen field, you can use this action plan to evaluate and optimize your loan repayment strategies and overall plan.

Evaluate Your Total Debt and Ability to Pay

Step 1

Know All Your Loans, Terms, and Servicers

The best way to manage your student loan repayment requires keeping a handle on your total current student loan debt. Most borrowers have multiple loans. Do you have only federal loans, private loans, or a combination of both? Have you consolidated any of your loans into one loan? Whether you have several loans or just one or two, you need to have all the details at your fingertips.

These details include such items as the current balances you owe, the terms of the loans, the interest rates, monthly payments and loan servicers. If you do not have such a thorough, current overview, follow these steps. Since you have been repaying your loans for a time, you may already keep a current overview. In that case, compare how you are currently managing your loans against our recommendations.

• 

  Use our interactive My Student Loans Factsheet to record important information about each loan. You can fill in your information on the PDF and print it or save it to your computer. You can also print blank factsheets to help you compile and compare information on repayment options.

• Locate all your federal loans and info about them using the National Student Loan Data System. You will use your FSA ID (Federal Student Aid ID) to log into your existing account (or create an account). If you are currently repaying federal loans, you should already have a FSA ID. Transfer this information to your factsheet.

  If you do not have a FSA ID, create one on the federal loan site. For answers to questions about a FSA ID, click here.

• List information about each private loan. Since you are presently making payments, you should already know your monthly payment amount. To identify other information about each loan, locate your original loan documents. Your servicer or lender should also have sent to you a schedule of payments that indicates the amount of the monthly payment and the number of payments required for payoff. For up-to-date information, you may need to contact the loan's servicer; contact information should be provided in the original paperwork.

• Create an account with each loan servicer if you have not already done so. It's your responsibility to keep your contact information up to date with all your loan servicers—for both federal and private loans. It's not the lender's or servicer's job to find you if you move to a new residence or change your phone or email address. So stay current with your info, open all communications from servicers or lenders (digital or paper), and keep a paper trail or secure digital back up of any records and all communications you may receive.

Tip: Create and maintain a back-up file with the paperwork for all your loans. Remember to add the paperwork for each new loan.

Step 2

Determine Your Total Monthly Payment for All Loans Combined

Record the actual monthly payments you are making on each loan on My Student Loans Factsheet.

• For a total of monthly payments for your federal loans, log on to your account at studentaid.gov using your FSA ID and use the Repayment Estimator. (This tool will also give you estimated monthly payments for different repayment programs other than the standard.)

• For your private loans, manually total the monthly payments on all loans as entered on your factsheet.

• For the total estimated payment you will owe each month, add together the monthly totals for your federal and private loans. This includes any consolidated loans.

Tip: Although most borrowers have several different loans with different monthly payments and loan servicers, having an overall monthly total will allow you to estimate "affordability" and your best repayment options.

Step 3

How Affordable Is the Total Amount of Your Monthly Loan Payments Based on Your Income?

Is this amount just right, too big, or too little?

The answer to this question depends on your income and living expenses. In general, a "debt service-to-income ratio" (total monthly payments) of 10% or less of a borrower's monthly income (adjusted gross income) is considered affordable. Some borrowers may be able to afford, as a "stretch," total monthly payments up to 15% of monthly income.

To evaluate the affordability of your total student loans, you need to compare your total loan payment obligations to 10% (up to 15%) of:

• Your actual income (assuming that you have a job in your field or other job you plan to keep).

• If you have not yet obtained a job in your career field but plan to keep trying while you work your current job, you may also wish to consider loan repayment affordability in light of your prospective income for an entry level job in the occupation(s) in which you are seeking employment.

• If you have been job seeking, you may know entry salary ranges in your field.

• You can also find estimated entry level salaries by using these online sources.

• The Salary Finder at CareerOneStop.org, sponsored by the U.S. Department Of Labor. You can look at salary ranges for 900 specific occupations and by city or state location. This tool reports low, median, and high salary ranges. Entry level jobs will most likely be in the "low" range; so use that figure for your estimate.

• Also check the entry level salaries for your field on Salary.com. Many college Career Centers use this site, although it is a commercial site. Warning: The site will be happy to sell you various customized reports, but just use their handy free entry level salary tool.

Review Your Current Repayment Plan

The goal of a good repayment plan is two-fold:

1. Pay down debt as quickly as possible to lower interest costs.
2. Select a plan that enables you to manage debt, not have debt drag you down.

If you currently are making separate monthly payments on each loan as its payment is due, you don't actually have a repayment plan—at least, not a plan created to best meet your individual needs. It's time to take a close look at the available repayment options and how you can use them to optimize your current situation and your future plans.

If you have already taken some steps, such as chosen an income-based repayment plan for your federal loans or consolidated some or all of your federal loans into a direct consolidation loan, now is a good time to see if you need to make any changes to better manage repayment. One of the advantages of federal student loans is that you can change repayment plans during the repayment term if your circumstances change and you need to restructure your repayment plan.

If you have consolidated your private loans or have rolled both your federal loans and private loans into a private consolidation, you have narrowed your options considerably, although you still should review your options for better management.

If you have not consolidated all loans (federal and private) into one private consolidation loan, the first review step is to look at repayment strategies for each of your federal and private loans (if any). After these separate steps, you'll look at how to fit everything together for the best approach.

It's time to take a close look at the available repayment options and how you can use them to optimize your current situation and your future plans.

Nerd Stuff: Want a more in-depth analysis of what constitutes affordable and excessive debt? Check out Who Graduates with Excessive Student Loan Debt?, a policy analysis by Mark Kantrowitz, former CEO of FinAid.org.

Step 4

Review All Your Federal Loan Repayment Options

Using your completed My Student Loan Factsheet and the charts below for "Traditional Repayment Plans" and "Income Driven Repayment Plans", review which repayment options you are currently using for your federal loans. The repayment options in these charts apply to Direct Loans (subsidized and unsubsidized), Stafford Loans (subsidized and unsubsidized), Direct PLUS loans made to students, and the older Federal Family Education Loan (FFEL). A federal Perkins Loans is not included in these repayment options because it is not a direct loan. Contact the school that made the loan for repayment options. If you have a Plus loan for Parents, see our page for Parents: Managing Loans as Part of Financing Your Child's College Education.

You may compare monthly payments under any of these repayment plans using the Repayment Estimator. To automatically find figures about your loans from the National Student Loan Data Center in the calculator, log on to your account using your FSA ID. For comparison, note the different monthly payments of the various repayment options for each loan.

The Repay Student Debt tool from the Consumer Financial Protection Bureau may also help you compare options to determine which are better for you.

Traditional options include:

• Standard Repayment Plan — Fixed payments over a 10-year term. You will get this plan by default if you don't pick another option.

• Graduated Repayment Plan — Payments start low and increase every two years over a 10-year term.

• Extended Repayment Plan — For Direct Loan borrowers who have more than $30,000 to pay. Payments may be fixed or graduated (start low and increase) over a term up to 25 years.

This chart from StudentAid.gov compares the terms of traditional plans.

Would a Federal Consolidation Loan Be a Smart Choice?

If you have more than one federal student loan, combining them into a single federal Direct Consolidation Loan may simplify repayment. If you need to lower your monthly payment, you may also be able to extend the repayment term (up to 30 years) on a consolidated loan using an Income-Contingent Repayment Plan. However, you will pay more interest overall with an extended plan. In addition, you will lose any benefits that came with any of the original loans such as interest rate rebates, principal rebates or certain cancellation benefits. Note that once you have consolidated loans, you cannot remove any loan from the consolidation loan—all original loans have been paid off and no longer exist.

On the positive side, you can include a Perkins loan in a consolidation loan and thus take advantage of extended repayment options. In addition, you need not consolidate all your federal loans, but may still have those loans considered when administrators determine whether you qualify for an income-contingent repayment plan.

To qualify for a direct federal consolidation loan, repayment of all the loans must be current or not in default (payment is more than 270 days late). If a loan is in default, your payments must be brought current before you can qualify for a federal consolidation loan.

Use this Q&A from StudentAid.gov to consider the potential advantages and disadvantages of a Direct Consolidation Loan. You can apply for a Direct Federal Consolidation Loan at www.studentaid.gov.

Tip: There is no application fee or any cost for a federal consolidation loan. The interest rate is also fixed for the term of the loan; this fixed rate is the average of the weighted interest rates of the loans being consolidated rounded up to the next highest 1/8 of 1 percent. So if anyone wants to charge you for helping you get a federal consolidation loan, say no and head to www.studentaid.gov.

Warning: In most cases, don't even think about consolidating your federal loans with private loans. Because private loans cannot be included in a federal Direct Consolidation Loan, consolidating federal loans with private loans requires a private loan. As a result, you would lose the protections and many flexible repayment options that federal loans provide. Click here for a brief review of the issues from the Consumer Financial Protection Bureau.

Flexible Income-Driven Repayment Options

Flexible Income-Driven Plans enable you to select a plan that adjusts your monthly payment amount in regards to your income and ability to pay. These plans also feature terms that extend beyond the standard 10-year term. If you have not repaid your loan in full at the end of the extended term the outstanding balance will be forgiven; however, this forgiven balance is usually taxable as income. In addition, you will pay more overall interest on these extended terms.

Income-Driven Plans include:

• Pay as You Earn Repayment Plans, PAYE (since 2012) & REPAYE (since 12/17/2015) — Payments based on 10% of your discretionary income but never more than the Standard Payment. Up to 20 years to pay.

• Income-Based Repayment Plans, IBR — Payments based on 10% of your discretionary income (new loans since 7/1/2014) or 15% of your discretionary income (loans before 7/1/2014) but never more than the Standard Payment. Up to 20 years (post 7/1/14 loans) or 25 years (pre 7/1/14 loans) to pay.

• Income-Contingent Repayment Plans, ICR — Payments based on a percentage of your discretionary income. Up to 25 years to pay.

This chart from StudentAid.gov compares the terms of income-driven repayment plans

Don't Fall for Student Loan Consolidation Scams

Unscrupulous private lenders advertise that they can get student loan debt discharged or forgiven. All they are doing is charging big bucks to file a Direct Federal Consolidation loan—something any borrower can do for free. Plus their "services" CAN NOT get student loan debt discharged or forgiven.

• Secretary of Education Arne Duncan's highlights these debt relief scams directed at students in the video on the left.

• A consumer advisory from the Consumer Financial Protection Bureau details the problem.

• Nerdwallet tells you how to recognize these scams.

Are Loans Deferred if You Go to Graduate or Professional School?

What Other Situations May Qualify for Deferment or Forbearance?

Yes, if you enroll in graduate or professional school (and are at least a half-time student) payment on your direct federal student loans and Perkins loans may be deferred. If you have subsidized loans, the government pays the interest during deferment. If you have unsubsidized loans, interest continues to accrue during deferment and may be capitalized into the loan principal when deferment ends and repayment begins.

You may also qualify for a period of deferment of payments of federal student loans if you are serving on active duty in the military, are experiencing a period of unemployment, or are working in certain occupations (see the next section).

Read this Q&A from StudentAid.gov for a more detailed explanation of deferment and forbearance.

What About Programs that May Qualify for Student Loan Forgiveness?

If you have been a full-time teacher for at least five years in qualifying fields and in qualifying low-income schools, you may apply to have a certain amount of some federal student loans forgiven or cancelled. The same is true if you serve in certain public service jobs. You must apply for these programs.

This Q&A from StudentAid.gov provides more detail and resources for these programs.

The Q&A also covers other circumstances which may qualify for loan cancelation or forgiveness. These include full and permanent disability, death, certain school closures and other situations.

If you were enrolled in a campus that was closed by one of these or similar institutions, you may be to get loan cancelation (forgiveness) for federal loans.

Did You Attend a For-Profit School That Has Closed?

In recent months, a number of for-profit colleges have closed their doors, often as a result of investigations and sanctions by the federal government. These schools include many locations operated by ITT Education Services (ITT Technical Institution), Education Management Corporation (Brown Mackie College), Sanford-Brown, The Art Institutes, Le Cordon Blue, Westwood College, and Corinthian Colleges (Everest, Heald, WyoTech). If you were enrolled in a campus that was closed by one of these or similar institutions, you may be to get loan cancelation (forgiveness) for federal loans. If you were former student, in some cases, you may also qualify for federal loan cancelation (forgiveness). For more information about this process, see this Q&A from StudentAid.gov. Note that typically, even if you qualify, you must apply for loan cancelation; it is not automatic. You may also call 1-800-4FEDAID for information about your particular situation.

Step 5

Review Your Private Student Loan Repayment Options

Does student loan debt repayment have to burden your budget for 10 to 20 years? Not necessarily.

You have already compiled facts about your private student loans on your factsheet. So you can see if, like most private loans, your private loans have higher interest rates than the federal loans. Do they have variable or fixed interest rates?

Many private loans have variable rates. Depending on the terms of your private student loans, you may wish to consider some of the following options.

• Consolidating your private loans into one loan. If you have a good income and a high credit score, you may be able to refinance your private student loans into one loan at a lower interest rate. Because interest rates are currently at an all-time low, they are likely to rise in the future.

  If you can obtain a fixed lower interest rate that might be a good option. Make sure any consolidation loan does not have a prepayment penalty. This short article from the Consumer Financial Protection Bureau offers more pointers on consolidating private student loans.

• Determine what options, if any, for deferment or forbearance your private lenders may offer.

• Consider paying off high interest private loans first. If you have extra money or make an effort to free up extra money in your budget, making regular payments toward the principal of a high rate loan can reduce its cost and shorten the time to pay-off. Before you attempt this, be sure the loan does not have prepayment penalties.

• Signing up for automatic payments may provide a small discount. Check with your loan servicer.

Many private loans have variable rates. Depending on the terms of your private student loans, you may wish to consider some of the above options.

Can You Get Out of Debt Faster? It's Possible!

Does student loan debt repayment have to burden your budget for 10 to 20 years? Not necessarily. The experiences of a number of borrowers suggest that making debt repayment a top priority for a year or two after graduation has enabled them to pay off even tens of thousands in just a few years. While this evidence is anecdotal (not from a reliable study) those who reported shortening debt repayment used one or more of these strategies:

• Make extra payments every month toward paying down debt. Make this extra payment money a regular part of your monthly budget.

• To free up extra money, spend less on living expenses, including housing, transportation, clothing, dining out and entertainment. For example, most people working first on repayment continued to share a modestly priced apartment and drive their old cars. They ate out about once a week or less, spent little on cable/internet entertainment, and sought out free events. They gave up shopping as a recreational activity.

• Work an extra job and put all that income toward debt repayment. We read of a recent graduate who had a good job as an engineer and also waited tables every weekend. He used that extra income along with a percentage of his engineer salary to pay down significant amounts of his debt.

• Put freed up or extra income toward paying off your most expensive loan first. This is often a private loan. Alternatively, pay off your smallest loan first. Chose the strategy that gives you the greatest incentive.

• If you go on to graduate or professional school, arrange to continue to pay off the interest on any loans where, though repayment is deferred, interest is accruing and will be added to the principal of the loan.

Step 6

Create a Revised or New Repayment Plan

After you have looked at all your repayment and loan consolidation options, compare how various combinations of those options would help you best manage loan repayments.

Use your affordable percentage of income figure in conjunction with your understanding of your current and future resources to help evaluate different options. Do you need a plan that enables you to pay less per month (but pay more interest in the long-run) or can you make some larger payments to pay off some loans sooner?

When you have arrived at a plan, make the appropriate applications and keep a record using a blank copy of My Student Loans Factsheet. When your new plan is operational, create a current Loan Factsheet as a summary of all the facts you need to keep track of your plan.

Review Your Repayment Plan Annually

An annual review of your student loan repayment plan will help you adapt your plan to your current life and work circumstances. For instance, a work promotion with an increased salary may enable you to make extra payments toward the principal of your most expensive loan. Such extra principal payments can shorten both the amount you pay in interest and the time to total repayment. On the other hand, if your employment has changed with the result you are making less money, you may choose to switch to one of the income-based federal repayment plans to help relieve stress on your budget until you recover financially. One of the benefits of federal loans is that you can switch repayment plans as needed; the same is not usually true of private loans. As these examples illustrate, making an annual review of how your loan repayment is going can help you continue to meet your goal of paying off student loans as quickly as possible without causing financial hardship.

More Resources

Repaying Your Loans, a downloadable overview from StudentAid.gov in English or Spanish.

For a more detailed overview of information covered on the StudentAid.gov website and included in your original exit counseling session for federal student loans, see the PDF of the 2018 Exit Counseling Guide.

If you are struggling a bit with managing repayment, see the excellent information at the Student Loan Borrower Assistance website, created by the National Consumer Law Center in addition to FoolProof's action plan for struggling borrowers, including those in default: Managing Student Loan Debt if You Are Struggling to Pay.