How to Get Out of Student Loan Debt

Learn how to pay off student loans in a way that fits your goals.

Student loans are now the second largest source of debt in the U.S. The average student leaves school with over $35,000 in loans to repay. And if you attended graduate school, your debt can be much higher.

The good news is that there are clear paths you can take to get out of student loan debt. Just follow these three steps and you can identify the best way to get out of debt.

Step 1: Understand your financial situation

Getting a higher education can create significant debt, but it can also significantly increase your lifetime earning potential. This is why student loan debt is considered a “good debt.”

Still, even a good debt can become a challenge, especially if you didn’t earn the degree you set out to get. If you don’t have the job you were supposed to get by taking on these debts, it can be hard to pay them back. But there are solutions you can use.

If you earned a graduate degree, then you may be a little overwhelmed at how much you owe. However, your degree hopefully secures you a better salary and job stability.

So, assess your situation to see where you stand:

  1. Did you graduate and earn your degree?
  2. What’s your currently salary?
  3. What’s the salary range for your career with your qualifications?
  4. How secure do you feel in your job?
  5. How quickly can you advance?

Step 2: Define your repayment goals

There are a range of solutions you can use to solve challenges with student loan debt. Each one meets a specific goal or set of goals. So, knowing how you rank certain repayment goals helps you identify the best solution.

Rank each of the following goals on a scale of 1-5:

  • Lower monthly payments
  • Fast loan repayment
  • Saving money on interest charges
  • Getting out of debt for less than you owe
  • Avoiding credit damage

Step 3: Evaluate your student loans

Finally, you need to evaluate how much debt you have and the types of loans that you have. You should also note the status of your debts – whether they are current, delinquent, in default, or in collections.

This worksheet can help you total up your student loan debt »

Now you can craft a strategy to get out of student loan debt

Student loan debt is unique, even if you have private student loans. You generally can’t roll student debt into solutions for other types of debt. They require a unique strategy, and in some cases, you may use more than one solution.

This will help guide you to finding the right solutions for your needs and goals.

If you think you can qualify for forgiveness, start working towards it

Public Service Loan Forgiveness can provide immense relief from student loan debt. It can cut what you owe dramatically. In fact, one government study proved that borrowers could get out of debt for less than what they borrowed without any penalties.

But it takes work and the right set of circumstances to qualify for forgiveness. You’re going to need to work at it for 10 years and follow an exact path to qualify.

  1. You must be employed in a qualified public service profession.
  2. You should certify your employment and re-certify anytime you change jobs.
  3. Then you must enroll in a hardship-based federal repayment plan.
  4. You must make 120 qualified payments to that plan (that’s 10 years)
  5. Then you can apply for Public Service Loan Forgiveness

It takes time and work, but it can save tens of thousands in loan repayment. It’s one of the only guaranteed ways to get out of debt for less than you owe. But it’s not easy.

Learn more about forgiveness in Federal Student Loan Relief

Weigh the risk/benefit of private student loan consolidation

If your main goal is to get out of debt as quickly as possible, then private student loan consolidation is often the way to go. You can consolidate all your student loans – federal and private – into a single private loan. The term can be much shorter that the standard 10-year term on any federal student loan.

The other big advantage is that with good credit, you can qualify for a lower interest rate. Federal relief programs don’t offer any option to reduce the APR applied to your loan. Any federal repayment plan will just take a weighted average of your current APRs. So, if you want to save money on interest charges, this is the way to go.

On the other hand. using this option converts your federal student loan debt to private. You are no longer eligible for federal relief, including student loan forgiveness. If you have any concern that you may face challenges with loan repayment in the future, it can be risky to convert your federal loans.

Understand how student loan consolidation works

Federal repayment plans are the best choice for financial hardship

If you need lower monthly payments because you’re struggling, then federal repayment plans are often the best solution. They can be a little tricky to navigate. After all, there are nine different repayment plans that you can use.

But many of them are hardship-based. That means they take your income and family situation into account. If you’re single living with one dependent, you may need the lowest payments possible just so you can keep up. Federal repayment plans offer that.

Explore federal student loan relief options

Don’t count on settlement or bankruptcy discharge

If you get into trouble with credit cards, there are options that give you a fast exit – settlement and bankruptcy. As long as you’re willing to accept some credit damage, these solutions can give you the fresh start you need.

But these solutions are not so easy to use with student loans. Federal student loans and even private student loans cannot be easily discharged during bankruptcy. You must be able to show that non-discharge would cause you continued extreme financial hardship. It’s extremely rare.

Federal loans also can’t be settled. And settlement is still very rare for private student loans. Since they can’t be easily discharged through bankruptcy, collection agencies are less likely to settle student loans. They can wait.

The only reason a collector is usually willing to settle a student loan is because it’s past the statute of limitations for collections in your state. If the collector can no longer pursue wage garnishment or liens in civil court, then they’re more likely to settle.

Still, this is not something you should count on! Statutes can last up to 10 years, and you can do things that reset the clock. It’s best to find a solution and get out of debt in the best and easiest way possible for you.