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4 Options to Manage Student Loan Debt

Evan Crosby
4 Options to Manage Student Loan Debt

The price of higher education has risen dramatically over the past few decades, going way, way beyond what families can afford with savings.

During the 1988-1989 school year, students at public four-year institutions paid average tuition and fees of $3,360 in today's dollars (adjusted for inflation), the College Board says. In the current academic year, those costs are more than three times higher -- averaging $10,230.

Is it any surprise the Federal Reserve says Americans are now carrying $1.46 trillion in debt on student loans?

The debt becomes too much for some borrowers, who can't afford to pay back their loans — and default. But they find little relief, because it's often very difficult to wipe out student loan debt through bankruptcy.

If you have more college debt than you can handle, what do you do? Here are four options.

1. Consolidate the debt

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Roll your student debt into one loan.

Many college graduates end up with more than one student loan to repay because they had to borrow multiple times during school. Repaying multiple loans can get confusing, especially if the loans have different terms.

If you are making multiple payments, you might consider rolling your student loans into one loan. Consolidating your loans will leave you with only one payment to make each month.

Also, all of your debt will have the same terms, including the same interest rate — and you may even be able to reduce the interest on some of that debt. Ask your lender if your loans are eligible for consolidation.

2. Refinance your loans

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Find an online personal loan at a lower rate.

Many college students haven't yet established good credit, so they wind up paying high interest on their loans because they are seen as risky borrowers. But graduates often find they are eligible to refinance those loans at lower rates.

Consider moving the debt over to a lower-cost personal loan, and potentially save thousands of dollars in interest. It's a particularly good move if you have student debt at a variable rate and can refinance into a new loan with a fixed rate that won't change.

If you are struggling to repay loans with higher interest rates, look into refinancing them with a lender offering better terms.

3. Ask for an extended repayment plan

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Ask for more time to pay off your student debt.

Federal student loans have a standard 10-year repayment plan, which can be difficult for borrowers carrying hefty college debt.

The government does offer extended repayment plans — usually for 25 or 30 years.

If you have private loans, contact your lender to see if it offers an extended repayment plan.

But note that when you stretch out your payments, you can find yourself paying considerably more interest over your longer term.

4. Seek income-driven repayment

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Demonstrate that your student loan payments are a hardship.

Federal student loan borrowers are sometimes eligible for what's known as income-driven repayment, which is another way of reducing your payment amounts and lengthening your repayment term.

If you're a borrower in good standing (NOT in default), you must show that your income is so low that your loan payments create a hardship. "Hardship" level is reached when the monthly payment is a certain percentage of your discretionary income.

Under income-driven repayment, you're allowed to take up to 20 to 25 years to pay off the debt. That means you will pay more in interest.

But here's the best part: When the 20 or 25 years are up, you can get any remaining balance forgiven. You'll need to make all of your payments on time over the years, and note that you'll owe income tax on any forgiven amount.