Tackling Student Loan Debt

In 2019, the national student loan debt stacked up to $1.4 trillion making it the second-largest category of household debt trailing only home loans. While most grads have high expectations for life postgraduation, many receive less than hoped for starting salaries and student loan debt is just part of the deal.

We have many clients visit with us about a recurring problem: how do I pay down my student loan debt, while also building for a life I want in the future? Though tackling student loan debt may feel like a large feat, here are a few ideas to consider to help pay down your loans faster.

Apply for student loan forgiveness programs

Your occupation will play a large part in your eligibility for loan federal student loan forgiveness. One of the most common types of loan forgiveness programs is Public Service Loan Forgiveness or PSLF. To qualify, you must be a full-time employee at a federal, state, or local government agency or at a 501(c)(3)-designated organization and make 120 on-time payments, as well as submit annual paperwork. It’s important to contact your loan provider to make sure your employer qualifies for the program to begin the process.

If you think you could qualify for loan forgiveness based on your profession, you may not want to pay your loan off sooner, because you could only end up costing yourself the money you could have had forgiven by the government on your behalf.

Keep in mind that private student loans are never eligible for forgiveness, regardless of your field of work. You can explore using the steps below to pay them off faster.

Consider Income-Based Repayment Plans

There are many repayment plans available to borrowers, including income-based repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and income-contingent repayment (ICR). Plans like these will tie your payments to your annual earnings amount, starting low in your lower-income years and rising as your earnings increase.

Refinance when you can find a better interest rate

Keep an eye on student loan interest rates even after you graduate. If they drop, as they have over the past year, it may be time to think about refinancing. Your monthly payments will have more of an impact paying down your principal balance if you’re able to shave off some of the interest. Only private student loan companies offer refinancing. You may be able to secure a lower interest loan if you have good or excellent credit. On the other hand, federal student loans allow for the consolidation of multiple loans though they do not offer refinancing.

As always, everyone’s financial situation is different. Talk to a CERTIFIED FINANCIAL PLANNER™ to decide what strategy may work best for you.

Sara Potts
Associate Advisor, Financial Paraplanner Qualified Professional™
KMH Wealth Management, LLC