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Student loan debt: Learn how to pay off your loans

Student loan debt is a problem for millions of Americans. Here’s everything you need to know to tackle your debt head on.
Illustration of young woman dragging a bag of students loans.
Student loan debt dragging you down? You're not alone.TODAY Illustration / Getty Images
/ Source: TMRW

Student loan debt is a crisis in the United States. As of early 2021, $1.7 trillion dollars was owed on educational bills, according to the St. Louis Fed. That affects almost 50 million people, according to data analyzed by NerdWallet.

"(Debt has) become an inescapable type of reality of higher education,” said Kelly Anne Smith, a consumer finance reporter at Forbes Advisor. Money problems — like having a $10,000+ loan hanging over your head — can feel really isolating. But you are not alone. Here’s what you need to know to tackle your debt head on.

1. Consider your plan carefully

If you’re embarking on a new degree and need to take out a loan, think upfront about the kind of loan that would work for you. Do your homework and don’t be afraid to make some calls and ask for help.

“When you're going into school or you're looking at schools and comparing costs, you need to keep in mind that … this is a financial commitment that you're going to have for the next 10 or maybe 15 or 20 years,” explained Smith.

Having so many options to choose from can feel overwhelming. The Federal Student Aid office has resources to help you understand the different types of loans and what might work best for you and your family. If you are considering a private rather than a federal loan, make sure you double check the rules — they may vary greatly lender to lender.

It’s also wise to consider your future career when crunching the numbers. For example, if you want to pursue a profession that’s not as high paying, consider your realistic income after graduation and how much you’d need to pay off your loans.

2. Know the terms of your loan

There are so many different loans out there and you need to read the fine print so you don’t get burned. It can feel scary to even acknowledge the full number, but you need to know what you’re dealing with in terms of interest and what your payments are covering.

Melissa Jean-Baptiste, co-founder of Millennial in Debt, didn’t fully understand that her student loan payments were only covering her interest — not her main or principal balance. “I was very, very shocked to find out that I actually was on an interest-only payment plan,” she told NBC News, “and that $50,000 that I borrowed, even though I had paid over $18,000 over … three years, my balance had gone up to about $80,000.”

If you get confused, call your lender. They can help you understand and make any necessary changes to your plan.

3. Game plan your payments

Paying off tens of thousands of dollars in loans is no easy feat. Having a plan to make your payments on time will go a long way, and some students can even start paying debt down while they are still hitting the books. Many loans offer a grace period on interest while you are in school and for a few months after you graduate, but there’s no reason to delay if you can afford even small payments, Jean-Baptiste says.

Another way to cover your payments while you’re on a budget: increase your income. As a teacher, Jean-Baptiste was able to turn work she was already doing into cash. “I started selling my lesson plans and my unit plans,” she explained, “to bring in some sort of extra income.”

Jean-Baptiste's saving grace was using sinking funds to structure lump-sum payments. She knew that if she was planning to pay $12,000 by the end of the year, “then I need to figure out how to put away a thousand dollars per month from January to December,” she said. “That's really what helped me stay the course.”

4. Think twice before you refinance

Interest rates are at record lows right now, so it may seem tempting to refinance for a lower interest rate. Smith cautions borrowers to think twice before a refi, particularly with federal loans.

When you refinance, you’re essentially taking out a new loan and “you no longer have a lot of protections or options that come with them such as at any time being able to transition to an income-driven repayment plan, forbearance or deferment,” Smith explained. If “you're in a really stable financial situation with a really good job in some cases it can be worth it to refinance, but in most cases the standard advice is not to refinance federal student loans.”

5. Find the balance

Interest can seem really scary and you might feel pressure to pay off as much of your loans as humanly possible to avoid accruing it. When it comes to aggressive repayment strategies, “there's a big difference between being in a rush to pay off a loan and stretching yourself super thin financially,” Smith said. “Being reasonable with how much you pay off each pay each month, and still (being) able to do other things, like build up your emergency fund or have money to go out and enjoy your life … people need to find a healthy balance between the two."

Paying off your loans is an amazing achievement and takes a lot of work. So many people are in the same boat. Be gentle with yourself as you figure things out and you will get there in time.