In Debt Management, Personal Finance, Student Loans

Paying off your student loan debt can feel like an unclimbable mountain. Even with high income, when you have student loans coupled with everyday expenses like rent or a mortgage, car payments, and a family to provide for, it can become quite a burden on your finances.

You don’t have to look far to find all sorts of tips and tricks on ways to repay student loan debt either. A simple Google search yields numerous results on refinancing and other product-based suggestions that are typically not even the most effective solutions for borrowers. But with student loan debt in America topping $1.4 trillion in 2019, it is no wonder so many people are looking for answers. 

As a CERTIFIED FINANCIAL PLANNER™ professional and a CERTIFIED STUDENT LOAN PROFESSIONAL™ l, I know what paying off student loan debt can mean for your financial future, and I see what actually works. Here are five ways you can repay your student loan debt effectively. 


1. Pay Loans Back under the Standard 10-year Repayment Plan

You can pay the least amount of interest over the life of your student loan and pay it off in the least amount of time under the standard 10-year repayment plan This tactic may cost you slightly more on a monthly basis, but it is a way to save the most money on the total cost of what you borrowed for your education. 

Both FFEL and Direct Loans are eligible for repayment under this option. So, . if your spending plan can absorb the repayment amount under the 10-year standard repayment plan, it is worth considering. An exception to this general rule is if you work for qualifying employer that is eligible for Public Service Loan Forgiveness. If you work for a government organization (federal, state, local, or tribal),a not-for-profit tax exempt 501(C)3 entity, or a non-tax-exempt not-for-profit entity, you may want to consider enrolling in an income-driven repayment plan and making the 120-qualifying payment towards Public Service Loan Forgiveness.   Any student loan balance remaining after making 120 qualifying payments will be forgiven tax free!


2. Enroll in an Income-Driven Repayment Plan

  • Income-driven repayment plans make it easier for you to pay off your federal student loans. Here is how to know if an income-driven repayment plan may be right for you:f your student loan debt is twice your annual income
  • you are having a difficult making student loan payment(s) under your current repayment plan
  • you work for a qualifying employer that is eligible for Public Service Loan Forgiveness (PSLF)

For my PSLF clients, our objective shifts from minimizing interest charged over time by paying your student loan debt off quickly, to structuring loan payments to maximize the amount of the loan that will be forgiven after making the required 120-qualifying payments. Your income-driven repayment eligibility is based on your income, family size, the type of federal student loan(s) you carry, and the loan distribution date(s). In my PROFESSIONAL’S GUIDE TO PAYING OFF STUDENT LOAN ebook, I describe the income-driven repayment plan options, how to determine your eligibility, and how enrolling in an Income-Driven Repayment Plan can help you accelerate other important financial goals like buying a home and saving for retirement.


3. Make Extra Payments

A sign that you may be able to pay off your student loans in less time than you think is having a low debt to income ratio. If you add up all the debts that you owe, including your student loan debt, and the total balance is less than your annual salary, there may be room in your spending plan to prioritize eliminating your student loan debt sooner rather than later. 

Making extra student loan payments minimizes the interest that accrues over time, and allows you to prioritize paying off the student loans with the highest interest rates first. If you work for an eligible employer that qualifies for Public Service Loan Forgiveness (PSLF), making extra student loan payments may not be the best repayment strategy, because doing so minimizes the loan balance that is forgiven after making 120-qualifying payments. 

I encourage student loan borrowers to establish an adequate emergency fund first, before utilizing any extra money to eliminate their student loan debt. I recommend that student loan borrowers have a minimum of three months of fixed expenses saved in a liquid account, such as a savings account that they can access for emergencies (unexpected medical bill, car repair, etc.,).  


4. Work for Qualifying Employer that is eligible for Public Service Loan Forgiveness (PSLF) 

Government organizations (federal, state, local, or tribal), not-for-profit tax exempt 501(C)3 entities, and certain non-tax-exempt not-for-profit entities are qualifying employers for PSLF. If you have Direct Loans, work full time for an eligible employer and enroll in an Income Driven Repayment Plan. Once you make 120 qualifying payments, it’s possible to pay off your student loans in ten years. 

The upside of Public Service Loan Forgiveness, is that any student loan balance remaining after making 120 qualifying payments will be forgiven tax free! In a nutshell, to qualify for public service loan forgiveness (PSLF) and pay your student loans in less time than you would otherwise, your student loans have to be Direct Loans, you must work full time for a qualifying employer, you have to be enrolled in an Income Driven Repayment Plan, and you have to make 120 qualifying payments. 


5. Consolidate Your Student Loans

Federal student loan consolidation is often misunderstood. You may think that consolidating your federal loans is necessary if you want to lower the interest rate(s) on your loans, but federal student loan consolidation doesn’t accomplish this goal. As a matter of fact, when you consolidate your student loans, the new interest rate of your consolidated loans becomes a blended rate that is then increased by .125%. This blended interest rate eliminates the option to target paying off loans with the highest interest rates. Federal student loan consolidation also restarts the loan forgiveness clock for both Public Service Loan Forgiveness (PSLF). So, even if you made qualifying payments toward Public Service Loan Forgiveness, you would lose the credit you earned toward PSLF when consolidate your loans. So, when should you consider student loan consolidation? Well, if none of the first four ways can work for you, federal student loan consolidation does have some benefits administratively. You can turn multiple student loans into one payment and by consolidating, and you can  actually expand the maximum repayment term to 30 years. 

Federal student loan consolidation can also make loans that are ineligible for Public Service Loan Forgiveness (PSLF), like Perkins Loans and FFEL loans eligible. Moreover, federal student loan consolidation can help cure default if you have defaulted on your student loans. 


Exciting New Service Offering Announcement!

Future Map Financial now offers Student Loan Repayment Consulting for student loan borrowers. This service is to help you identify challenges and opportunities related to your current student loan repayment plan and to assist you with creating and implementing the optimal student loan repayment strategy for your personal and financial circumstances. Click Here to Learn More!

As always, I invite you to reach out to me – in real life – with any comments, feedback, or questions!  [email protected]. Are you ready to take the first step towards securing your financial future? If so, schedule your free 30-minute no-obligation student loan repayment consultation with me today. Schedule Your Consultation with Frank.

Disclaimer: The information contained in this article is for informational purposes.  None of the information provided in this article is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. Please consult with your accountant, finance professional, and/or legal counsel regarding your specific circumstances. Reproduction of this material is prohibited without written permission from Frank Shields, and all rights are reserved. Read the full Disclaimer.

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