How to pay off student loans — and what to do if you can’t make your payments

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If you’ve recently graduated — or are about to — it’s time to start coming up with a strategy to pay off your student loans.

There are multiple ways to pay back your education loans, whether they’re federal or private. However, it’s essential that you choose the right plan for your financial situation and take advantage of the resources available if you can’t make a payment.

Read on for an in-depth look at how to pay back your student loans, what to do if you can’t make your payments and some tips on how to pay off your loan balance as quickly as possible.

Table of Contents

• Understanding the types of student loans
• Federal student loan repayment plans
• What to do if you can’t make payments on your federal loans
• Private student loan repayment plans
• What to do if you can’t make payments on your private loans
• Tips for paying off your student loans fast
• How to pay off student loans FAQ

Understanding the types of student loans

In order to pay down your student loan debt, it’s important to understand how your specific type of loan works. There are two main types: federal and private loans.

Federal loans, that is, loans backed by the U.S. Department of Education, are further classified into subsidized loans and unsubsidized. They also include PLUS Loans, which are issued to students’ parents, and consolidation loans that allow you to combine all your loans into a single one. Federal loans typically have fixed interest rates and offer more repayment and hardship options than private loans.

Private loans, on the other hand, are owned by for-profit financial institutions such as banks or credit unions. These loans can have variable or fixed interest rates and typically offer much less flexibility in terms of repayment than federal loans. Additionally, unlike federally backed loans, these loans accrue interest while the borrower is still in school.

Federal student loan repayment plans

Most federal loans (with the exception being the parents’ PLUS loans) will grant you at least a six-month grace period between the time you graduate — or your enrollment drops to half time or less — and when repayment starts. Note, however, that interest starts accruing during that grace period. And, once it ends, you’ll be required to make payments in one of the following ways:

• Standard Repayment Plan: Under this plan, borrowers make fixed monthly payments over a period of 10 years.
• Income-Driven Repayment (IDR) Plans: These types of plans calculate monthly payments according to the borrower's income and family size, offering more manageable payments for those with limited income. One recently instituted income-driven repayment plan called SAVE (Saving on a Valuable Education), for example, caps the amount borrowers need to pay at 10% of their discretionary income. Additionally, once the loan term is complete, the remainder of what they owe is forgiven.
• Graduated Repayment Plan: Borrowers start with a lower monthly payment that increases every two years and lasts up to 10 years.
• Extended Repayment Plan: Extends the repayment period beyond the standard 10 years — up to 25 years — which results in lower monthly payments. This plan, however, does substantially increase the overall cost of your loan.

Once the grace period ends, you’ll be automatically enrolled in the standard repayment plan; if you want to use another of the repayment methods, you will need to contact your loan servicer and apply for one of the other plans.

What to do if you can’t make payments on your federal loans

Federal loans provide several options if you’re facing financial hardship, unemployment, military deployment or a medical crisis.

If you can’t make your payments, the most important step is to contact your loan servicer as soon as possible. It’s important to do this as soon as you realize you won’t be able to make your payments to prevent possible damage to your credit history.

Deferment

You can apply for deferment if you meet one or more of the following conditions:

• Unemployment
• Undergoing cancer treatments
• Economic hardship
• Enrolled in a graduate fellowship program
• Enrolled in school at least half-time
• Military service or returning from active duty
• Attending a rehabilitation training program

Some types of loans, such as subsidized loans and Perkins, do not accrue interest while in deferment. Others, however, do. You can check with your loan provider and, if you can afford to make at least interest payments, it’s advisable to do so. Otherwise, that interest will be added to your principal balance.

Forbearance

You can apply for forbearance if you meet one or more of the following conditions:

• Facing financial difficulties, including medical bills or significant changes in income
• Serving in AmeriCorps
• Qualify for partial loan forgiveness through the U.S. Department of Defense
• In a medical internship or residency
• Serve in the National Guard
• Student loan payments are high, given your income
• Currently work as a teacher and qualify for Teacher Loan Forgiveness.

The main difference between deferment and forbearance is that, during forbearance, all types of loans will continue to accrue interest. This will, of course, increase your debt in the long run.

Loan Consolidation

If you have a good credit score and multiple federal loans, you could consider getting a consolidation loan. This will combine all your loans into one, hopefully at a lower interest rate, which could result in a lower monthly payment.

This will, however, extend the repayment period and any unpaid interest you have on your original loans will be added to your new loan’s principal balance.

Student loan forgiveness

The massive student loan forgiveness program proposed by the Biden-Harris Administration is still battling its way through court, but there are some forgiveness plans already available for borrowers that meet certain eligibility criteria. Do note that these usually require you to make payments for years before being eligible for discharge.

The most often-used forgiveness plan is the Public Service Loan Forgiveness (PSLF), aimed at those who work full-time in government organizations or qualified non-profits. You could also qualify for forgiveness if you were the victim of fraud by a higher institution or suffered a permanent disability. Make sure to check out the Federal Student Aid’s Student Loan Forgiveness page for more information.

Private student loan repayment plans

Unlike federal student loan servicers, private student loans have different repayment terms.

Many also offer a grace period of around six months after you graduate or your enrollment status drops to half-time or less. However, this is not guaranteed and it’s important that you check with your lender (or read your loan’s fine print) to ascertain when repayment starts.

Once your repayment starts, your lender might offer one or more of the following:

• Standard repayment: You’ll make fixed monthly payments of both principal and interest. This is the default payment arrangement.
• Interest-only repayment: If you qualify, you could arrange to make lower, interest-only payments. This can only be done for a pre-established amount of time.
• Extended term repayment: Repayment could be extended to up to 30 years, making monthly payments much lower than the standard repayment period, but significantly increasing the cost of the loan overall.
• Rate reduction: Some lenders might offer a rate reduction program that offers eligible borrowers a lower interest rate for a set period.

What to do if you can’t make payments on your private loans

When it comes to late payments, private student loans are much less lenient than federal ones. Depending on the lender, missing even a single payment can put your loan into delinquency, and you run the risk of incurring penalties and late fees. Late payments will also be reported to the credit bureaus after 30 days, instead of the 90 days granted by most federal loan issuers.

So what should you do if you can’t afford your payments on a private loan? First, it’s important you talk to your lender as soon as possible. Once you do, you can explore the following:

• Extended repayment plan. While private lenders don’t typically offer income-based repayment options like federal loan servicers do, many reputable lenders will have extended repayment plans that do just what the name implies: extend your loan terms so that your monthly payments are lower.
• Ask about deferment and forbearance. Some lenders offer these options provided you meet certain requirements, such as going to grad school or having a military deployment. A few might offer them in cases of unemployment.
• Refinancing. If your payments are too high for your income, you could consider refinancing your loan and extending its term. Provided you have good credit, refinancing could also get you a lower interest rate than you had originally, which might save you money in the long run.

Tips for paying off your student loans — fast

As mentioned above, the standard repayment plans for both federal and private student loans are typically for 10 years. However, if you’re determined to be student debt-free as fast as you can, you could consider doing the following.

1. Choose the standard repayment plan

While both federal and private loans offer a variety of repayment programs, if you want to pay off your student loans as quickly as possible, choose the standard repayment plan. This is typically the shortest repayment term, which is 10 years.

The standard repayment plan will feature higher monthly payments than others; however, you’ll pay less interest over the life of the loan and be rid of debt faster.

2. Enroll in auto-pay if possible

Federal loans, and some private loans, offer a discount in your interest rate if you set up automatic payments. Most will offer 0.25%, but some will go up to 0.50% discount. Some private lenders might also give you rate discounts if you have other loans with them and/or have a history of on-time payments.

3. Make more than the minimum payments

If you’re able to, increase your monthly payment amounts. Putting an extra $100 or $200 a month toward your student loans could considerably reduce both the amount of time you’ll spend in repayment and the interest you’ll pay over time.

If you’re planning to do this, however, make sure to contact your lender and tell them that you intend to pay extra toward the principal; otherwise, they’ll put it towards next month’s payment.

4. Put “found money” toward your student loans

If you’re really determined to be free of student debt as fast as possible, try to allocate any tax refunds or work bonuses you receive toward the loan. Making large extra payments can help cut down on your balance quickly.