4 Options for Relief From Your Staggering Student Loan Debt

Young female college student lifting a student loan sign. Photo courtesy of Shutterstock.

If you’re saddled with overwhelmingly high student loan debt, you aren’t alone. The Consumer Financial Protection Bureau reports that some of the most common complaints it receives deal with the difficulties of making payments on loan balances. Below are four smart strategies to help you get out from under the weight of your student loans.

Pay Off Variable-Rate Private Loans First

A private loan may have come with a low interest rate when it was first signed, but unlike federal loans, they can climb by several interest points over the years. Private loans also offer fewer payment options to borrowers. If you have a private variable-rate loan, pay it off first and as quickly as possible. As the economy shifts, the interest on these loans can spike suddenly, whereas the rates on fixed federal loans cannot.

Pay Down the Principal

If you can afford to pay down or off the principal on any of your loans (variable-rate first, though), do so. You may be better off using your savings to pay down a high-interest loan than having it earn a mere .06 percent interest in the bank.  The same may be true if you receive annuity payments —you can sell annuity payments for a lump sum and put the money down on your loan’s principal.  This can cut years off your payment schedule.

Modify Your Repayment Plans

You likely have federal student loans; in fact, Real Simple reports that 85 percent of all education debt is made up of Perkins, PLUS, Stafford and direct consolidation loans. There are essentially five repayment options available for federal loans:

• Standard plan: Borrowers are required to make a set payment once a month over a certain number of years.
• Income-based plans: Monthly payments are limited to a reasonable percentage of the borrower’s income. Income-based plans feature debt forgiveness after 25 years of payment.
• Graduated repayment plans: These have lower rates at first, but climb every two years or so and are paid off in 10 years.
• Extended repayment plans: These feature smaller payments over a longer period of time. Plans like these are best avoided if you can afford to make the payments.
• Pay-as-you-earn plans: Based on your income, these keep monthly payments affordable. If your debt is high relative to your current income, you may qualify for this plan.

Don’t simply pick the option with the lowest monthly payment, as this stretches out a loan and costs you more in the long run. And though you may have chosen a repayment plan at the time the loan was issued, you can speak with a loan servicer to change plans at any time. The federal government has a wide variety of tools available to you at StudentAid.ed.gov to help you pick the repayment plan that is right for you.

Talk to Your Boss

Some companies that can’t pay the big salaries of larger corporations may offer to pay you a lower wage and put a payment toward your loan. Graduates in fields that require technical or specialized degrees are more likely to find an employer willing to make this exchange, especially if it is brought up in salary negotiations after hiring. Employers want you to commit to staying with them if they are going to pay down or off your debt and will probably require you to sign a contract to that effect.

Nurses, tech professionals, engineers and other graduates with specialized degrees are more likely to get this help from an employer, but it never hurts to ask, especially if you are due for a raise. Accepting a lower wage for help with a student loan may seem counterintuitive, but employers know that educated employees are always worth the cost.

By Amanda King

Amanda is a CPA and certified financial planner who dreams of having a chalet in Chamonix.