Strategies to Reduce Student Loan Debt

For millions of Americans, student loans are a critical piece to financing higher education. If you’re anxious about paying off your student loans, you’re not alone. Student loans are not one-size-fits-all, and neither are the solutions to manage them. An Ameriprise financial advisor can create a personalized approach to help pay down debt in an efficient manner.

Understanding Your Student Loan Situation

The first step is making the time and space to take stock of where you are. How much student loan debt do you have? Do you have private loans, federal loans, or both? If you have one or more federal loans, your first stop should be the National Student Loan Data System, which allows you to look at all of your federal student loans in one place. 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.

Repayment Plan Options

Federal student loan repayment plans generally fall into two categories: fixed repayment plans and income-driven repayment plans. Beginning July 1, 2026, there will be fewer repayment options, as most existing income-driven repayment plans are being phased out.

Fixed Repayment Plans

Standard repayment plan: Your loan balance is divided into equal monthly payments over 10 years, with each payment covering both principal and interest. This is the default plan if you do not select another option.
Graduated repayment plan: Payments start lower and increase every two years over a 10-year period.
Extended repayment plan: You pay a lower monthly payment over a longer period of time (up to 25 years). To be eligible, you must have more than $30,000 in outstanding Direct Loans.
Revised standard repayment plan: A new version of the standard plan for loans disbursed after July 1, 2026.

Income-Driven Repayment Plans (IDR)

If your federal student loan payments are high in comparison to your income, you could consider an income-driven repayment plan. Under this program, your monthly student loan payment will be set at an amount that is projected to be affordable based on your income and family.

Repayment Assistance Plan (RAP): Designed to provide payment flexibility for borrowers with lower incomes and adjust payments as income changes.

Strategies to Accelerate Repayment

1. Paying Above the Amount Due Each Month

Consider paying above the amount due each month to pay off your loan faster and reduce the total amount of interest you’ll pay. When making extra payments, inform your loan servicer that the money should be applied to your principal balance. After you select your desired repayment plan, you may find you are able to pay more than you are required to. There is no penalty for paying more than your monthly payment amount and many borrowers choose to contribute additional funds to pay down their student loans faster.

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From a strictly financial perspective, paying down your loans with the highest interest rates first will save you more money in the long run because the loan will be paid off sooner and less interest will have accrued. You may also find it advantageous to target down a private loan, even one with a comparable interest rate as your federal loans, as these types of loans do not have the same repayment plan options available.

The other targeting strategy you may come across is called the snowball effect. This strategy holds that borrowers should target pay their smallest debt first, regardless of interest rate. While this strategy may not save you money in the long run, it is designed to foster positive behavior change and provide emotional gratification. Since the borrower targets the smallest debt, they are likely to have that amount paid in full in a relatively short amount of time. That accomplishment can serve to further encourage you to pay off your debts quickly and may result in even more money being put towards your student loans, creating a snowball effect of debt management that the strategy gets its name from.

2. Biweekly Payments

By making biweekly payments, you’ll pay half your monthly bill every two weeks instead of making one full monthly payment. This means you’ll make an extra payment each year, reducing your repayment timeline and the amount of interest you’ll pay.

3. Auto-Pay Discount

Federal student loan servicers offer a quarter-point interest rate discount if you sign up to deduct loan payments from your bank account automatically. Many private lenders also offer an auto-pay deduction. As a federal student loan borrower, you are eligible for a quarter of a percent reduction on your interest rate if you elect to have your student loan payments made through automatic pay. This option tends to be an easier way for individuals to save themselves a little bit of money because once the auto-pay is set-up, you don't have to think about it again. Just be sure to know what day the payment occurs and which bank account you have linked to your loan servicer account to avoid insufficient fund penalties or fees associated with overdrafts.

4. Loan Consolidation

If you have been assigned multiple servicers to manage your federal loans, are looking for lower monthly payments, or would like more time to pay off your loan, loan consolidation may be an option worth considering. Loan consolidation combines all of your eligible federal loans into one loan and uses the average weighted interest rates of your previous loans to serve as the new interest rate. The terms of the consolidated loan allow you to pay off the loan in 30 years. This typically results in the borrower making a lower monthly payment, which could make managing the loan easier for an individual. Keep in mind that consolidation does not mean you will owe less; in fact you may discover that over the life of a consolidated loan you paid more in total due to additional amounts in interest accrual. NOTE: The Department of Education offers consolidation for eligible federal loans. If you are working with a lender outside of the federal government and the term consolidation is used, please be aware that it is not true loan consolidation through the Department of Education. You will lose access to the benefits available to federal borrowers such as repayment plan options and loan rehabilitation.

Whether you’re rolling up multiple federal loans into one loan (consolidation) or into a private loan at a lower interest rate (refinancing), there can be significant risks and benefits to combining your student debt.

5. Refinancing

With this strategy, you replace multiple student loans with a single private loan, ideally at a lower interest rate or shorter repayment term. The option to refinance your loans and find a new lender that offers a lower interest rate is another way that borrowers look to better manage their debt. Refinancing a loan occurs when a borrower replaces their current loan with a new loan. The new lender essentially takes responsibility for the old loan and the borrower is assigned a new loan from the lender in return. Refinancing is typically most advantageous for individuals who borrowed a private loan at a high interest rate or for individuals who borrowed federal loans and do not need to rely on the flexibility and financial security that comes with the numerous repayment plan options.

6. Prioritizing High-Interest Loans

With this method, you make the minimum payments on all your loans and then direct remaining money each month toward the loans with the highest interest rate.

Educational Assistance Benefits

Finally, keep in mind some employers offer educational assistance benefits that can be used toward student loan debt. Employers can provide up to $5,250 of educational assistance per year to employees tax-free. Loan repayment assistance programs are employer-sponsored benefits for employees. The assistance can take the form of direct payments towards the loan repayment or as a reimbursement of funds you have already paid. There are generally monetary limits for how much assistance you will receive from your employer as well as hours or months worked before you are eligible to receive the assistance.

Loan Forgiveness Programs

In addition to the repayment plans, some borrowers may be eligible for federal loan forgiveness programs based on their employment details. Similar to loan assistance programs, loan forgiveness opportunities can provide relief during repayment. Loan forgiveness programs are almost exclusively tied to specific employment criteria and are generally sponsored by federal or state governments. While conversations around wide-spread federal loan forgiveness have been increasing, there have been no changes to the current loan forgiveness opportunities available.

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Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness (PSLF), where applicants who are employed by a federal, state, local, or tribal government or nonprofit organization can be eligible for loan forgiveness after making the equivalent of 120 qualifying monthly payments while working full time for a qualifying employer. The most well-known loan forgiveness program in existence today is the Department of Education’s Public Service Loan Forgiveness. This program is eligible to those with Direct Subsidized, Direct Unsubsidized, Direct PLUS, and/or Direct Consolidated Loans.

In addition to qualifying federal loans, there are other eligibility criteria to consider before deciding to pursue Public Service Loan Forgiveness:

You must be working full-time for a qualifying employer, generally a government agency, which includes federal, state, local, or tribal; or a non-profit organization designated with a 501c3 tax code.
You must make a total of 120 payments towards your student loan balance before the remaining amount is eligible for forgiveness
Each of your payments must be made under an Income Driven Repayment Plan
You must submit documentation to your servicer annually to verify your continued eligibility for PSLF

When each of those items have been fulfilled, federal borrowers can expect to receive 100%, nontaxable forgiveness on their remaining balance.

Important Note- As of Mar. 7th , changes to the PSLF program have been proposed to exclude employers/ organizations “whose activities have a substantial illegal purpose”. While no formal changes have occurred, borrowers are encouraged to stay informed on this matter and should consult their servicer as needed.

Teacher Loan Forgiveness Program

Teacher Loan Forgiveness Program for applicants that teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency. Applicants may be eligible for forgiveness of up to $17,500.

Other Types of Loan Forgiveness Programs

Other types of Loan Forgiveness Programs include:

Federal Perkins Loan Cancellation
Durham Teaching Fellowship
North Carolina Forgivable Loan
Nurse Faculty Loan

Note that while you will not pay federal taxes on loan forgiveness, some states treat forgiveness as ordinary, taxable income. When applying for forgiveness, you will want to plan accordingly for tax time by reviewing your state’s tax laws.

Additional Considerations

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.

Budgeting

When you’re talking about thousands or tens of thousands of dollars of debt, you might be tempted to throw your budget out the window - when actually you need your budget now more than ever. 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.

Forbearance Awareness

A good example of this dynamic can be seen in what is known as forbearance. 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.

Avoiding Scams

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. Never share your loan or bank information, or your studentaid.gov login.

Default Consequences

If you continue to miss payments, your loan will eventually enter default. For most federal loans, this occurs after 270 days, or approximately 9 months, although loans are not reported to be in default until they reach the 360th day of delinquency and are sent to collections. Banks and other private lenders typically charge-off private education loans when they become 120 days past due, but charge-off rules vary by lender.

A default note will go on your credit report, which can have a negative impact on your credit score. Once your loan is in default, the lender can file a lawsuit against you to collect on the debt. This is because student loans are unsecured debt, which means there is no collateral to repossess, such as a car or house.

Defaulting on a federal student loan can have additional consequences. You could lose your eligibility for all federal student aid and face garnishment of your federal tax returns, wages, and Social Security payments. However, typically there are other options for getting out of default. If you are struggling to afford your student loan payments, reach out to your servicer immediately to ask about your options. Contact your private loan lender to determine what option is best for you.

Borrowers who expect to be incarcerated for at least 10 years should inform their loan servicer.

Key Steps to Take Control of your Loans

Know what you owe. Make a list of your student loans. Include whether they’re private or federal, monthly payment and due date, the current and principal balances, the interest rates, and servicer. If you’re not sure, start by checking your free credit report. For federal loans, it will also help to know what type of loan it is (such as PLUS, subsidized, or unsubsidized) and the name of your repayment plan. You can look up your federal loans at studentaid.gov.
See if your loans fit into your budget and pay schedule. Make a budget and explore strategies for reducing debt to help you see how your student loans fit into your finances. Request a different due date if that would make it easier for you to make your payments on time and in full.
Make sure your federal repayment plan is the best one for you. You can use Education Department’s Loan Simulator to compare plans by monthly payment, total interest, and more.
Set up direct debit (aka autopay) for 0.25% off your interest rate. With direct debt, your payment is taken automatically from your bank account each month. All federal direct loans and many private lenders offer this discount.
Extra payments can get you out of debt faster and save you money on interest-if you can afford them. To get the full benefit, tell your servicer to apply extra payments to your highest interest rate loan(s) first.
Stay in touch with your servicer. Take notes when you talk on the phone with them: jot down the date, the name of the person you’re talking to, what you asked, and how they answered.
Claim your student loan interest on your tax return. Depending on your income and tax filing status, you may be able to claim up to $2,500 of the student loan interest you paid in a given year.
If your payment is too high, seek income-driven repayment rather than a pause on payments. Pauses, known as deferment and forbearance, are not long-term solutions. An income-driven repayment (IDR) plan can reduce your monthly payment to as low as $0.
Set a reminder to renew your paperwork. If you don’t consent to the automatic recertification, you will need to confirm your income annually in order to keep your payment based on your income. Failure to recertify will likely result in a significant increase in your monthly payment amount. It can also result in interest capitalization. Renew your IDR income recertification early if your income goes down or your household grows. Your monthly payment will be recalculated.
Beware of capitalization. For federal student loans, interest will be capitalized - or added to your principal - under two circumstances: when you exit a period of deferment on an unsubsidized loan or when you are repaying a loan under the income-based repayment (IBR) plan and you no longer need financial assistance as determined by the regulations. In other instances, interest may accrue but not be added to the principal.
Lower your payment by saving for retirement. Your IDR payment is based on your adjusted gross income (AGI). Contributing to a tax-deferred retirement account, like a 401(k) or 403(b), decreases your AGI and your IDR payment too. This could increase the amount forgiven if you are pursuing loan forgiveness through PSLF or IDR.

Getting an IDR plan for Parent PLUS Loans

Consolidation is the first step. Parent PLUS loans are not directly eligible for ICR. You must convert them into a Direct Consolidation loan, starting with this free application . The Education Department offers help before and during the consolidation process .
Do not consolidate other federal student loans with Parent PLUS loans. If you do, you will lose other benefits on those other loans, like access to other income-driven plans.
Once you have a consolidation loan, you can request ICR. You can submit your request online or by calling your servicer.
Set a reminder to renew your enrollment next year. If you fail to recertify your income and household size , your monthly payment will revert to a payment based on the standard, 10-year payment schedule. Parent Plus borrowers recertify by logging in to your federal student aid account .
Your total loan balance can grow on ICR. If your monthly payment does not cover the accrued interest, your loan balance will go up, even though you’re making payments. Unpaid interest will also capitalize each year until your total balance is 10% higher than the original balance. This means you will pay interest on your interest.

Exercise your rights as a servicemember

Your service counts towards public service loan forgiveness (PSLF). After you make 120 qualifying monthly payments under the PSLF program, you can apply to have your remaining loan balance forgiven, tax free.
Get your interest rate capped. The Servicemembers Civil Relief Act (SCRA) entitles you to have your interest rate reduced to 6% on all debts taken out before your service began, including both federal and private student loans. Federal student loans can be reduced to 0% when you are serving in a hostile area.

Avoiding Wasting Money

Don’t use credit cards or home equity to pay off student loans. Credit cards will cost you way more in interest. If you refinance your loans using home equity and run into trouble paying your mortgage, you could lose your house. Either way, you will lose the flexible repayment options and borrower protections offered by federal student loans.
Don’t go back to school just to avoid loan payments. Even during in-school deferment, your unsubsidized loans will accrue interest. Carefully compare the costs and benefits of more education.
Don’t pay for help with your student loans. Many companies sell support services, including filling out forms. These services, however, will charge you a fee for something you can do for free.

Calculating the Return on Investment (ROI)

The purpose of student loans is to assist in paying for an education that will bring recurring benefits in the future, such as job security, increased wages, and career mobility. It's a major role in financing higher education. An important question to consider is: How do you calculate the return on your investment (ROI) ahead of time? To understand the long-term implications of student loan debt, it's important to look at the situation holistically, including the benefits and hidden costs. Will there be a financial return on your education investment? Although it can be hard to project exactly how much you'll make over a lifetime, it's important to estimate what the financial return might be on paying for a degree. Specifically, it's important to estimate whether the gain in salary is likely to outstrip the cost of the degree, including the monthly student loan payments.

Getting Organized and Informed

The first thing to do is to get organized with all of your student loan information, which you can do through the federal government or through our student debt calculator. Write down all of your loans, the lenders, and the interest rates, and whether they are private or federal. This information will likely vary by semester, year, and school, and it impacts certain factors like your eligibility for repayment plans and federal legislation. Consider the financial return of paying off your loans. Once you know the interest rate on your loan(s), you can compare that to how the money might perform if invested elsewhere.

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