How to handle student loan debt: 7 strategies

For millions of Americans, student loans are a critical piece to financing higher education. But upon graduation, many borrowers are faced with a new dilemma: How can they strategically manage their debt and balance student loan repayment with other financial priorities, such as saving for a home down payment or retirement?

If you have student loans, an Ameriprise financial advisor can create a personalized approach to help pay down debt in an efficient manner. Here’s how to manage student loan debt:

1. Pay more than what’s due each month

Consider paying above the amount due each month to pay off your loan faster and reduce the total amount of interest you’ll pay. Even a little can make a big difference.

For example, paying $50 extra per month on a $25,000 student loan allows you to pay off the loan two years early, while also saving more than $1,500 in interest.¹ To see how extra payments could affect your loan payoff schedule, check out our enhanced loan calculator.

When making extra payments, inform your loan servicer that the money should be applied to your principal balance. Otherwise, the servicer may apply the extra amount to your next month’s payment, which would simply advance your due date instead of reducing the principal.

Learn more: Effective debt management: Tips and strategies

2. Pay biweekly instead of monthly

By making biweekly payments, you’ll pay half your monthly bill every two weeks instead of making one full monthly payment. This means you’ll make an extra payment each year, reducing your repayment timeline and the amount of interest you’ll pay. With a standard 10-year repayment plan for a federal loan, this strategy allows you to pay off the loan a year early.

3. Reduce your interest rate by signing up for autopay

Federal student loan servicers offer a quarter-point interest rate discount if you sign up to deduct loan payments from your bank account automatically. Many private lenders also offer an auto-pay deduction. In both cases, signing up for autopay is a simple way to reduce the interest rate on your loans while ensuring you don’t accidentally miss any payments.

4. Consider refinancing or consolidating loans

With this strategy, you replace multiple student loans with a single private loan, ideally at a lower interest rate or shorter repayment term. If you have several loans, this can streamline your student loan debt management plan and help you pay off the loans faster, but there are several considerations:

• Your monthly payment may increase, if you opt for a shorter loan term to pay down the principal faster and save money on interest.
• Refinancing is not typically an option if you’re a recent graduate, as refinancing lenders prefer an applicant to have an established credit history and several years of steady employment.
• Refinancing federal loans may make you ineligible to take advantage of certain benefits, including student loan forgiveness and income-driven repayment plans.

Before refinancing, shop around with a few lenders to find the best rates and use Ameriprise’s enhanced loan calculator to compare the possible scenarios.

5. If you have multiple loans, consider this effective debt payoff strategy

If you have more than one student loan and are unable to consolidate them, consider using the debt avalanche method to efficiently tackle your debts.

With this method, you make the minimum payments on all your loans and then direct remaining money each month toward the loans with the highest interest rate. Once that loan is paid off, the extra repayment funds go toward the next-highest interest-bearing loan until that debt is paid off, and so on until all your student debts are gone.

The debt avalanche method reduces both the amount of interest and the amount of time you pay on your loan.

Learn more: Strategies to help pay off debt faster

6. Ask your employer about loan repayment assistance

Employers can currently provide up to $5,250 in student loan repayment annually as a tax-free benefit for employees, so ask your company if they offer any repayment assistance — or are planning to in the future.

Here are a few other employer benefits to explore:

• Signing bonus or annual bonus: An employee could potentially put this lump-sum payment toward student loan debt.
• Unused vacation time: Some employers allow employees to apply the value of their unused paid time off to their student loans rather than carrying the time over from year to year.
• Student loan match: Employers can match student loan payments as if they were payments to a qualified retirement plan, even if the employee doesn’t contribute to the company’s retirement plan.

7. Know your government program options for repaying federal loans

If you meet the criteria, some borrowers with federal loans may be eligible for student loan forgiveness programs or other student loan debt management plans.

• Public Service Loan Forgiveness Program: If you work in a public service job for the government or a nonprofit organization, you may be eligible for the Public Service Loan Forgiveness Program. To have debt forgiven under this program, you must first make 10 years of qualifying payments.
• Career-specific and military programs: Veterans, active-duty military personnel, teachers, doctors and nurses may also be eligible for federal or state programs specifically designed to help manage or forgive their student loans.
• Income-driven payment plans: If your federal student loan payments are high in comparison to your income, you could consider an income-driven repayment plan. Under this program, your monthly student loan payment will be set at an amount that is projected to be affordable based on your income and family. This program also provides loan forgiveness after a set period of qualifying payments, usually 20 or 25 years.

You can find specific details on the above programs at the U.S. Department of Education’s website.

Let’s create a personalized student loan management strategy for you

If paying off school loans is a priority, an Ameriprise financial advisor can help build an effective strategy to manage them along with your other financial priorities.