How to reduce student loans

If you've got student debt to repay, you're not alone. An estimated 42.7 million Americans are in the same boat. 

It's easy to stress over student loans, but take a deep breath. You just need a plan to pay them off—ideally sooner rather than later. 

We've already shown you how to lower personal loan costs. Now let's look at how to reduce student loan debt and unburden your budget. 

1. Choose the right repayment plan

Federal student loans give you a choice about how you repay them. You can opt for:

• Standard repayment has a 10-year term with fixed payments. 

• Graduated repayment lets you pay less in the early part of your loan and more later on. 

• Extended repayment is designed to help you pay your loans off in 25 years. 

What if you can't make the payments under any of these plans? Then you can look at income-driven repayment (IDR) instead.

IDR plans base your monthly payments on your income and household size. Some plans can put your payment as low as $0. You can take 20 to 25 years to pay off your loans. Any balance left after you’ve made all of your required payments (including payments for $0) might be is forgiven. 

You can apply for IDR plans through the StudentAid.gov website. 

2. Make extra payments when possible

Student loans, whether federal or private, have a minimum payment requirement just like credit cards. This is the lowest amount you can pay each month to keep your account in good standing. 

Does that mean you can only pay the minimum? Nope, and it's actually a good thing to pay more toward your loans when you can. When you pay more than the minimum, you reduce your interest costs and shorten your payoff window. That could minimize student debt in the long run.

Prepayment penalties for federal and private student loans are banned under federal law. So that means your lender can't tack on a fee if you pay your loans off early. 

Tip: Direct your lender or loan servicer to apply extra payments to the loan principal, not the interest. The principal is the amount you originally borrowed. 

3. Consider refinancing

Refinancing means you get a new student loan from a private lender to pay off your existing loans. So why do that? 

It could make sense to refinance student loans if you can lower your interest rate, your monthly payments, or both. You'll generally need good credit (or a co-signer with good credit) to qualify for the lowest rates on a student loan refinance. 

Here's one important thing to know, however. When you refinance federal student loans, they become private loans. That means you lose access to valuable benefits like:

• Income-driven repayment plans

• Forbearance and deferment programs that let you temporarily pause loan payments

• Eligibility for federal loan forgiveness programs

A student loan refinance calculator could help you estimate what you might save so you can decide if it makes sense.

Tip: If you don't want to roll your federal loans into a private loan, you could apply for federal consolidation instead. 

4. Take advantage of loan forgiveness and assistance programs

The federal government offers several programs to help you reduce student loan debt in exchange for a work commitment. Some of the most popular options for federal loan forgiveness include:

• Public Service Loan Forgiveness (PSLF). PSLF could erase your federal loan balance after you make 120 qualifying payments and work in an eligible public service role. You can minimize what you pay by enrolling in an IDR plan. 

• Teacher Loan Forgiveness. Teachers who agree to a five-year work commitment in an underserved school. Forgiveness maxes out at $17,500.

• Military repayment. Eligible military members could get some of their student loan debt repaid by the federal government. 

Your state may offer forgiveness programs or other options to help reduce student loan debt. You can contact your state's higher education authority to learn what kind of help may be available. 

5. Look into deferment, forbearance, or employer contributions

Deferment and forbearance let you take a temporary break from making payments. Federal loans offer deferment and forbearance options. 

One thing to be aware of is how deferment and forbearance affect interest on federal student loans. 

• Deferment. Interest does NOT accrue on certain types of loans, so you don't have to worry about your balance increasing. 

• Forbearance. Interest accrues on all federal loans which can leave you with more to repay. 

Obviously, it makes sense to apply for deferments first, but you can only do that so many times. Once you exhaust your deferment period, you'll have to consider forbearance instead. The most important thing is to talk to your lender right away if you can't repay your student loans, so you don't risk default. 

If you only have private student loans, ask your lender if they offer any type of hardship relief or payment pause. Private lenders aren't required to offer the same benefits the federal government does, but some do. 

Here's one more tip for how to reduce student debt: Ask your employer to chip in. 

Some companies offer programs to help you manage student debt. For example, your employer might match the amount you pay every month or agree to pay off a lump sum of your student debt. Check with your human resources department to find out if this might be an option for you.