Personal Insights

How to Manage Student Loan Debt

If student loan debt feels overwhelming, explore your options for managing it, including budgeting, repayment plans and loan forgiveness programs.

Just as there are lots of ways to get money for school, there are lots of ways to pay it back. And that’s a good thing because Americans owed nearly $1.8 trillion in student loans in 2023—a 62% increase since 2013. Though that’s a significant rise, it’s actually a much slower rate of increase than what occurred between 2008 and 2018, when student loan debt more than doubled.

Regardless of historical trends, the reality of repaying student loans can seem daunting for many recent graduates. However, careful budgeting and an examination of all of the repayment options available can help you manage your student loan debt without feeling overwhelmed.

Find the Right Repayment Plan

For most federal student loans, you’ll have six months before you have to start making payments, which is called a grace period. Graduation is typically the start to the six-month countdown, but if you drop below half-time enrollment or leave school, your grace period will begin, too. That timing stands regardless of whether you graduate, leave school or drop below half-time enrollment. Take that time to create a detailed inventory of your loans and how much you owe. Then, look at your income sources and other expenses to create a budget and determine how much you can dedicate to your repayment plan.

Note that federal Direct PLUS loans offer a six-month deferment period, but not a grace period, and that private lenders may give you more time, less time or no time at all for a grace period. Unlike grace periods, a deferment is usually not automatic, meaning you will need to submit a request to your provider. With a deferment you may also be responsible for any interest that accrues during the period.

Some lenders may automatically enroll you in a repayment plan. If the standard repayment option doesn’t work for you, you may have other options available to you. For example, you can apply for one of four income-driven repayment plans for federal loans. These plans may let you make a lower monthly payment based on the amount of money you earn and the size of your family. Private lenders may also offer different repayment programs, like interest-only repayment plans. Check with your lender to understand the repayment options that are available to you.

Consolidating and Refinancing Student Loan Debt

If you’re hoping to spend less of your monthly budget on loan payments, consolidation of separate federal loans can potentially extend your repayment window and/or give you lower payments. While private loans aren’t eligible for consolidation, they can be refinanced through private lenders, as can Direct PLUS loans.

There are a number of potential benefits to consolidating your student loan debt. In addition to potentially lowering your monthly payments, having one fixed-rate loan may help you avoid variable-rate loans, which can cost you more over time if interest rates rise. Also, one consolidated loan may be easier to manage since you’re making one payment rather than multiple payments. There are a few downsides, however. First, outstanding interest on your separate loans becomes part of the principal of the new consolidated loan, meaning you’re paying interest on top of interest. Second, if interest rates fall in the next few years, you could miss out on any interest savings that a variable-rate loan may offer.

Consolidating your student loans may also cost you some advantages of your initial loan arrangement, like interest rate discounts, principal rebates or loan cancellation benefits. You may also lose the right to participate in income-based repayment plans.

Take a Break: Deferment or Forbearance

Under certain circumstances, you can pause or temporarily lower your student loan payments with a deferment or forbearance. Be aware that there is a difference between each option.

• What is deferment? During a deferment period, you’re typically not responsible for paying interest that accrues on certain subsidized loan types, though interest will still accrue on unsubsidized loans.
• What is forbearance? During a forbearance period, interest is still accruing, and you’ll have to pay it later, usually in one lump sum when the next payment is due.

Check with your lender for your eligibility for deferment or forbearance. Generally, if you’re struggling to keep up with payments due to a short-term setback—like the loss of a job—one of these options may be right for you.

Student Loan Forgiveness, Cancellation and Discharge

Loan forgiveness or cancellation usually means your loans are forgiven if you meet certain standards. The Public Service Loan Forgiveness (PSLF) program offers loan forgiveness for those who work full time for a government agency or a selected type of nonprofit and have made 120 payments under a qualifying repayment plan.

If you’re counting on public service-based loan forgiveness, be sure to document your loan payments carefully and stay up to date on the rules for forgiveness. New rules for the PSLF program went into effect in 2023, and those rules could affect whether—and how—you want to consolidate your loans. The new rules expand eligibility for PSLF and relax some guidelines around how deferment and forbearance periods affect your payment count. They also allow, in some cases, payments that previously didn’t count toward the required 120 to be applicable. Also, bear in mind that there are other loan forgiveness programs, such as those for teachers, nurses and members of the military.

Income-based repayment plans, like those mentioned above, also provide federal student loan forgiveness after 20 to 25 years of continuous repayment on an eligible plan. Be aware that this could impact your tax liabilities.

Loan discharge is occasionally offered under other conditions, such as a major disability or your school closing. In August 2022, President Joe Biden announced a plan to forgive up to $20,000 in federal student loan debt for millions of borrowers, but the U.S. Supreme Court ultimately struck down the plan, saying such a large debt cancellation program needed to come from Congress and not the executive branch. In response, Biden is pursuing an alternative path to achieve essentially the same outcome through rule-making, but that will likely take months, if not longer, to implement and could still face legal challenges.

Private loans tend to be more difficult to cancel or discharge because lenders aren’t required by law to offer this kind of relief.

Examining all of your repayment options, along with careful budgeting, can help you manage your student loan debt without feeling overwhelmed—no matter what happens in Congress, the White House or the courts.

Maintaining Your Credit Profile While Paying Off Student Debt

You need good credit for future borrowing, so it’s critical to make your payments on time and avoid defaulting on your loans. In fact, repaying your student debt responsibly can actually help you build a strong credit history.

Your credit score is based on a combination of factors, including your payment history, types of debt, the amount you owe, your debt-to-income ratio and any new loan applications. It’s a good idea to obtain free annual credit reports and check for inaccuracies. You might improve your debt-to-income ratio by establishing a graduated repayment option, with smaller repayments coming earlier.

Make a plan and consider all of your options before your student loan payments kick in. With a little budgeting and some research, you can slowly but surely chip away at student loan debt.

Find tips to save money during school.

Three Things to Do

1. Get additional practical tips for paying off your student loans by listening to this podcast.
2. Use Regions’ debt consolidation calculator to see if you can save money by consolidating your loans.
3. Read how to set financial priorities for your post-graduation goals.