How to approach paying off your student loans

A woman stands with her diploma wearing her graduation cap and gown after graduating from college
August 17, 2023 | Ben Heinze

Student loans continue to be a major financial stressor for many. As policy changes and proposals related to student loans occur, many are confused about the best approach to paying off their student loans. While it’s impossible to predict the future and know what policy proposals will come to fruition, there are steps you can take depending on your individual situation. Learn what to consider and how to approach your student loans going forward.

The current state of student loans

Payments resuming

As part of COVID-19 relief measures, the government paused federal student loan payments, meaning borrowers were not required to make payments during that time. As of September 1, 2023, interest will begin accruing, and payments will be due again starting October 2023. If you haven’t been paying off your federal student loan balance, remember to check your exact due date and payment amounts to be ready.

There is a one year “on-ramp” beginning October 1, 2023, and ending September 30, 2024. During that period, interest will still accrue and payments will be due, but missed and late payments won’t be reported to credit agencies, and you will not enter delinquency or default. This on-ramp only applies to federal student loans, not privately-held ones.

Student loan forgiveness

The state of student loan forgiveness is a major reason many feel confused on whether they should try to pay their student loans off. The previously announced student loan forgiveness plan, which would have forgiven up to $20,000 of federal student loans per borrower, was struck down by the Supreme Court. Legal challenges are still making their way through the court system, and the ultimate outcome is unclear. There’s a possibility some student loans could still be forgiven, but certainly no guarantee.

Interest Rates

The interest rate of your student loans significantly impact your monthly payments, especially for those with large amounts to pay off. Though interest rates are higher now than in recent years, the vast majority of student loan debt consists of federal loans with a fixed interest rate. Private loans tend to have a higher interest rate that may be either fixed or variable.

To reduce the impact interest has, there are several strategies you can employ. If you have multiple student loans with different interest rates, focusing on paying off the loan with the higher rate will result in paying less in total interest (remember to still make minimum payments on all your loans). If you have the means to, you can also make more than the minimum payments on your student loans, which will reduce the principal you owe faster, in turn reducing the amount of interest you accumulate.

Finally, you can consider refinancing your student loans. Whether refinancing is the right decision comes down to your financial situation. In general, refinancing makes sense if you’re currently paying higher interest rates with stable finances and a high credit score that will allow you to qualify for lower rates. A lower interest rate on a refinanced loan can reduce your minimum monthly payment and help you pay off your loan faster.

What to do if you’re struggling to make payments

Unfortunately, student loan payments have become a huge burden for millions of Americans. While generic advice to cut expenses or increase your income is accurate, that’s often much easier said than done. Thankfully, you have options if you find yourself in a situation where you’re struggling to make your minimum monthly payments on your student loans.

Federal loan repayment plans

There are numerous repayment plans for those with federal student loans, many of which will lower your monthly payments compared to the standard repayment plan. Some plans are available to everyone, while others require meeting specific criteria. One example of a repayment plan is the Income-Based Repayment Plan, which is available to those with a high debt relative to their income. This plan adjusts your monthly payments based on your discretionary income.

For more information, visit Keep in mind that many alternative repayment plans can result in you paying more over time than the standard plan.

Deferment and forbearance

Both deferment and forbearance will have your student loan payments paused. While neither is a long-term solution, they can be helpful options if needed. The specific differences between each can vary based on your student loan type. Be sure to thoroughly research the financial implications of each option and what you qualify for.

Talk to your loan servicer

Ultimately, loan servicers, whether federal or private, want to get the money they loaned you back. If your plan isn’t working out, reaching out to your loan servicer about potential solutions is a good step to take. Loan servicers are often willing to work with people who are honest and upfront about their situation. There’s no downside to trying this method, as the worst-case scenario is staying in the same position you’re currently in.

Why paying your student loans matters

When faced with difficult financial situations, it can be tempting to push the problem away. However, there can be significant consequences for not making student loan payments that will impact your finances for years to come.

When you miss any loan payments, including student loans, it will hurt your credit. This will make everything from renting an apartment and buying a car to getting a credit card more difficult. Eventually, non-payment will cause your student loans to default, exposing you to consequences such as wage garnishment and loss of tax benefits.

While paying off student loans can seem like an impossible challenge, going in with a plan can help you confidently tackle your debt. Researching and considering all the options at your disposal can reveal the best path forward for your financial situation.

Learn more about student loans:

Ben Heinze is a marketing content specialist with a passion for financial education. Instilled with a strong sense of frugality from a young age, he views money as a means to building the life you want, rather than an end in itself. From reading Money Mentor, he hopes you discover new ways money can be used to build your ideal life—whatever that may look like.

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