Strategies to Conquer Private Student Loan Debt

Student loan debt can feel overwhelming, but repaying your student loans may be easier than you think. With a little organization and planning, you can set yourself up to successfully repay your loans. Paying off your student loans quickly means you’ll be able to invest in yourself, such as retirement, homeownership, and savings. Getting rid of a loan also lowers the amount of debt you have relative to your income, which will help you qualify for other funding. Here are some strategies to help you pay off your private student loans faster and more efficiently.

Understanding Your Debt

The first step is making the time and space to take stock of where you are. Know how much you owe. Gather all your student loan documents (federal and private) and make sure you know the terms of each loan, including the payment amounts, payment due dates, who you pay, and when you need to start repaying (typically 6 months after you leave school). For private student loans, there is no one-stop shop to look up your loan information. Once you have a firm grasp on the kind and amount of debt you have, you can begin to figure out which federal repayment plan is best for you.

Budgeting and Financial Planning

Developing a Budget

"If you’re trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget," says Jessica Ferastoaru, student loan counselor at Take Charge America. Keeping a realistic budget lets you make smart financial decisions on how much to spend, how much to save in an emergency fund, how much to put in a 401(k) or IRA, and how much to put toward your loans. Many proactive steps can help keep your budget on track. For instance, obtaining a part-time job can generate extra income to pay bills, including your student loans. Avoiding impulse spending can also help keep your budget in line. Assess your spending habits and your ability to keep a budget.

Automating Payments

Setting up automatic payments from your personal checking account may help you manage your monthly student loan payments. You won’t have to worry about making individual payments, and you may also have the potential to manage your monthly payments, as some lenders provide a lower interest rate if you sign up for automatic payments. Establishing automatic payments with a lender may have the added benefit of reducing the interest rate on your student loan. Many lenders, including federal student loan servicers, offer a small interest rate discount-typically 0.25%-when you sign up for autopay. The discount means more of your payments go toward reducing your principal balance (the original amount you owe, excluding any interest or fees). If your lender doesn’t offer this discount, it still may be worth it to automate student loan payments with a checking account or lender. Setting up automatic payments with your checking account could potentially reduce late payments and any associated fees. Making consistent student loan payments may benefit your credit score.

Prioritizing High-Interest Debt

The interest rates you have on your loans probably are all different. If you direct any extra money to your highest interest rate loan first, you may pay off your loan faster and pay less interest. If you have multiple loans with different interest rates, pay off the higher-interest loans first. You can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Either strategy can save you money.

Read also: No Cosigner Student Loans

Strategic Repayment Methods

The Debt Snowflake Method

The debt snowflake method involves making smaller, more frequent payments on your debt to slim it down. By making 26 biweekly payments-each equal to half of the monthly payment amount-over the course of a year, borrowers effectively make one extra full payment.

Allocating Extra Funds to Principal

Allocating more money specifically toward the principal owed on your student loan reduces the overall amount of the outstanding debt upon which the interest is calculated. “Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a ‘paid ahead’ status,” says Ferastoaru. To help accomplish this goal, try allocating any unexpected lump sums of money you receive to student loan principal repayments. Making extra payments may not automatically speed up loan repayment, as some servicers apply them toward future payments, covering interest and fees first. Applying the payment directly toward the principal balance of your loan reduces the amount on which interest is calculated, which may save you money over the course of the loan. When making a payment online, some loan servicers give you the option to indicate if you want the payment to go toward the principal.

Biweekly Payments

Another strategy is to pay biweekly rather than monthly. This approach involves making payments on your student debt every two weeks, as opposed to once a month. By doing this, you are making 26 half-payments annually, which is the equivalent of 13 full monthly payments per year. Instead of making one full monthly student loan payment, you can pay half your bill every two weeks. This is called a “biweekly” payment. You’ll end up making an extra payment each year, shaving time off your repayment schedule and dollars off your interest costs.

Avoiding Interest Capitalization

Another factor that can impact your student loan debt is interest capitalization. This occurs when unpaid interest on your loan is added to the principal balance, increasing the overall balance of the loan debt. Moving forward, the lender charges and calculates interest on the new balance. Depending on the specific type of loan you have, unpaid interest may be added to your loan balance where you’ve previously deferred payments or your loan was in forbearance. At the end of deferment or forbearance, the unpaid interest is capitalized. Interest may also capitalize after a grace period on loan repayments has ended. Unless your loans are subsidized by the federal government, interest will accrue while you’re in school, during your grace period, and during periods of student loan deferment and forbearance. That interest capitalizes when repayment begins, which means it is added to your principal loan amount. You’ll wind up paying interest on a larger amount, increasing the amount you pay over time. Consider making monthly interest-only student loan payments while you’re in school, during your grace period, or during a forbearance to avoid capitalization. Or, make a lump-sum interest payment before your six-month student loan grace period ends. It won’t directly speed up the payoff process, but it will mean you have a smaller balance to get rid of once repayment formally begins.

Seeking Financial Relief and Assistance

Forbearance

If you’re facing financial hardship and find it difficult to make your private student loan payments, you might be able to apply for forbearance. Forbearance isn’t forgiveness - you’ll ultimately have to pay the loan in full. But this may allow you to postpone your payments and ease your current cash crunch. If you are struggling to make your payments and call your loan servicer about your options, they might want to place you in forbearance, which allows you to skip payments for a few months. While that might seem like a helpful option, it carries with it several disadvantages: Not only is it easy to let three months of forbearance turn into six or 12 (pushing you that much farther away from paying off your debt or achieving debt forgiveness), but when forbearance ends, you often have a higher interest rate, monthly payments and total debt than you had before accepting forbearance.

Read also: Choosing the Right Student Loan

Employer Assistance Programs

Many employers have begun offering student loan repayment assistance or tuition reimbursement. Employers can contribute up to $5,250 annually toward an employee’s college tuition or student loan repayment assistance through 2025. This benefit is not taxable income for the employee, a major benefit for workers pursuing higher education while continuing to work. A limited number of employers offer student loan repayment assistance as part of their benefits package. Employers typically cap the annual reimbursement amount, so review the details if this benefit is available to you. While not widespread, this benefit could be a deciding factor when choosing between job offers.

Loan Forgiveness Programs

Ask your lender if they offer any forgiveness and cancellation programs. Private student loan lenders rarely do a good job of advertising or letting borrowers know about the relief programs they offer. Some private lenders do offer these types of repayment assistance programs, but it will depend on who your lender is and what the terms of your contract are. If your private student loan lender promised you this kind of help when you took out the loan, either verbally or in the contract or loan brochure and materials, they must stick to those promises. You should review your private loan contract carefully to better understand what rights you have. It never hurts to ask for help.

Refinancing and Consolidation

Refinancing for Better Terms

Refinancing your student loans could help you pay down your loans faster by helping you obtain a lower interest rate, a shorter repayment period, or both. Refinancing student loans can help you pay off student loans faster without making extra payments. This process replaces multiple federal or private student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that’s less than what's left on your current loans. Opting for a shorter term may increase your monthly payment. But, it could help you pay the debt faster and save money on interest. For example, refinancing a $50,000 student loan with an 8.5% interest rate and 10-year term to 6% interest on a seven-year term would save you roughly $13,000 - but your monthly payment would increase by about $110. Another way to potentially reduce your private student loan debt is to consider refinancing or consolidating your private student loan with another private lender. You may be able to reduce your interest rate and get better loan repayment options if you refinance or consolidate your private student loans with another lender.

Risks of Refinancing Federal Loans

Never refinance or consolidate your federal student loans with a private lender! If you do this, you will lose all of your rights to federal student loan protections, including cancellation and forgiveness programs, income-driven repayment, and deferment and forbearance options. For most borrowers, it is a bad idea to refinance or consolidate federal student loans with private loans, even if you think you will get a better interest rate. You could still end up paying more on your loans in the long run because of all of the federal benefits and protections you will lose. Think twice before refinancing federal student loans. You’ll lose access to IDR plans and federal student loan forgiveness programs, like Public Service Loan Forgiveness. You’ll also forfeit payment relief if you lose your job and other borrower protections which private borrowers can’t access. Once you refinance, your student loans permanently become private; there’s no way to turn them back into federal loans.

Additional Strategies

Negotiating a Settlement

You may also be able to negotiate a settlement to pay off your student loan debt in a lump sum that is less than the total amount you owe on your student loan bill.

Loan Modification

You could also try to ask your lender for loan modification. This is an agreement that changes your loan repayment terms to make it easier for you to pay off, usually by lowering your interest rate or reducing your loan fees. If you make any of these agreements, get them in writing!

Tax Deductions

The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan and your filing status is not “married filing separately.” This program also has adjusted gross income limits, which are set annually.

Utilizing "Found" Money

If you get a raise, a student loan refinance bonus, or another financial windfall, try to allocate at least a portion of it to your student loans. Start a side hustle to increase your income and pay off student loans faster.

Avoiding Scams and Seeking Qualified Help

One final word of advice: Watch out for scammers. You might get approached by seemingly legitimate companies offering you better terms and convenience if you send your loan payments directly to them. Get free, qualified help from credit counseling organizations (not to be confused with credit repair companies). Don’t use other debt, like credit cards or home equity loans, to pay off your student loans. Learn other ways to avoid scams and wasting money. Know where to turn if you run into problems with your student loan servicing.

Staying Informed

Ten, 20, 25 years can be a long time, and a lot can happen while you’re paying back your student loans - you might move, change jobs, get married, or change phone numbers. In the hustle and bustle of daily life, it’s easy to forget to keep your loan providers up to date with your most recent contact information.

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