Struggling With Student Loan Debt? Repayment Options Are Available to You

By Melissa Powell
Student loan debt sits at $1 trillion as 2013 comes to an end, according to the Consumer Financial Protection Bureau, and 81 percent of borrowers carry more than $40,000 in debt. If you're reevaluating your student loan repayment process, you should know about these options that can help.


Increase Your Monthly Payments

Paying the minimum amount for your student loans may cushion expenses in the moment, but it ends up costing you more in the long run. Research repayment options suitable for your financial situation to prevent high-interest payments that end up driving up the total cost. Forbes' Maggie McGrath, who covers personal finance for millennials, recommends a repayment schedule that includes 120 payments over a period of 10 years.

Once you have a job, try to add extra money on top of the minimum payment required. You'll reduce your principal and lower the total payback amount.


Pay a Lump Sum

If you receive an inheritance or any other large sum of money, consider putting it down on your principal or just paying off the loan entirely. Your money will serve you better paying down the debt and reducing your total interest than sitting in a savings account earning a paltry .06 percent. Similarly, if you receive a structured settlement or other type of annuity, consider selling it and using the money to pay down or off your loan.


Get a Different Repayment Plan

Paying your loan down faster isn't always an option in some financial situations, and at times it's just impossible. The following programs calculate a fixed percentage based off your income and although they extend McGrath's suggested repayment period, they are available to you:
  • Income-Based Repayment (IBR): Monthly payments are 15 percent of discretionary income for a 25-year payment period
  • Income-Contingent Repayment (ICR): Monthly payments are determined by adjusted gross income, family size and total Federal Direct loans for a 25-year payment period
  • Pay-As-You-Earn: Monthly payments are 10 percent of discretionary income for a 20-year payment period; however, 2011 and later graduates most likely won't qualify
Also, if you choose to pay with an income-based plan, your annual amount owed is calculated from 15 percent of your yearly income. After year 25, remaining debt will be exonerated. USA Today explains the other situations that qualify you for student loan forgiveness.
Make sure during auto-pay that you provide the government with annual income information so you can remain enrolled, advises Rick Ross, co-founder of College Financing Group. Services will put borrowers who haven't supplied updated income data on a standard repayment plan, which can significantly drive up monthly payments.



You can manage several monthly payments by consolidating your loans into one payment. Interest rates for each loan will be reduced by 0.25 percent. There are stipulations, however; learn more at the Department of Education's page about the Special Direct Consolidation program.


A Note About Forbearance

Avoid deferment and forbearance with income-based repayments. Deferment or forbearance temporarily postpones or reduces federal student loan payments to prevent default. Although forbearance suspends payments, it accrues high interest. GL Advisor warns that a graduate with $165,000 in debt will accrue an estimated $1,000 per month in interest during a forbearance period.