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Tips for paying off student loans more easily

It’s always a good time to give your student debt repayment plan a check-up. Regardless of your situation, there are some basic steps you can take to avoid stress and save money in the long run.

Understand what makes student loans unique

Student loan interest begins to accrue after the loans are issued, and borrowers can expect to pay more than they originally borrowed. But student loans also have some unique traits, and understanding these can help you make more informed financial decisions.

How does interest work with student loans

  • Interest accrues daily, in most cases starting the day your loans are disbursed. If you have a subsidized federal loan, the government will pay your interest while your loans are in a deferred status – for example, while you are in still enrolled at least half time in school or in your six-month, post-school grace period. The government also will pay your interest when your loans are placed in deferment due to a return to at least half-time enrollment in college, economic hardship, unemployment, cancer treatment, or military deployment. Whether you have a subsidized loan or unsubsidized federal loan, you will be responsible for the interest that accrues during a forbearance.
  • Depending on the type of loan, unpaid interest may be capitalized after a period of deferment or forbearance, meaning that it will be added to your loan principal balance when you resume making payments. In other words you will pay interest on interest.
    • For Direct Loans and other federally-owned loans, interest is capitalized after a deferment on an unsubsidized loan or if you are repaying your loans under the income-based repayment (IBR) plan and no longer qualify to make payments based on income or leave the IBR plan.
    • Interest that accrues during a forbearance, while you are in school or in the post-school grace period is no longer capitalized into the principal balance of your Federal Direct Loans.
    • If you have certain, older federal loans that are not owned by the federal government, interest may capitalize after the post-school grace period or a deferment on an unsubsidized loan, after certain types of forbearance, or, if you are repaying your loans under the income-based repayment (IBR) plan and no longer qualify to make payments based on income or leave the IBR plan.

Interest rate example:

Let’s put these concepts together in an example. Suppose you borrow $10,000 for your last year of school, at an annual interest rate of 3.65%, with repayment starting exactly 1 year after you get your loan funds.

  • With a daily interest rate of 0.01% (3.65% ÷ 365), you will accrue $1 in interest each day, for a total of $365 by the day repayment starts.
  • If you don’t pay off the $365 before repayment starts, then it will capitalize. Your principal will increase to $10,365, and your daily interest will go up to $1.0365.
  • If you stay on Standard Repayment Plan, with ten years of equal monthly payments, you will pay about $103 a month, with about $17 going to interest.
  • But suppose you apply for income-driven repayment (IDR) and qualify for a $5 payment. Your payment will not cover your monthly interest charges, and the remainder will stack up in your account, causing your loan balance to grow. This is negative amortization.
  • Negative amortization happens when the total amount you owe increases as you repay your loan if you’re not paying off your interest each month. Your interest charges will be added to the amount you owe, causing your loan to grow over time. This can occur if you are in a deferment for an unsubsidized loan or if you have an income-based repayment (IBR) plan and your payments are not large enough to cover the monthly accruing interest.

Interest rate example:

Let’s put these concepts together in a couple examples.

The first example illustrates how much interest can accrue before repayment begins. Suppose you borrow $10,000 under an Unsubsidized Direct Loan for your last year of school at an annual interest rate of 3.65%. Repayment will start exactly one year after your loan is fully disbursed. In this example, you receive half the loan amount on September 1st and second half on January 1st.

The second example shows how interest accrues during repayment. In this case, you have $10,000 in Subsidized Direct Loans when you leave school. You were not charged any interest while in school or the grace period. The interest rate on these loans during your repayment period is 3.65%.

  • If you enroll in a standard repayment plan, with equal monthly payments over ten years, you will pay about $100 a month for 120 months. During your first year of repayment, about $350 of those payments will go to interest.
  • However, suppose you apply for income-driven repayment (IDR), other than the Saving on a Valuable Education (SAVE) plan, and qualify for a $5 payment. Your payment will not cover your monthly interest charges, and the remainder will stack up in your account. This will cause your loan balance to grow rather than shrink, even though you’re making regular payments. This is negative amortization.

How do payments and credit reporting work with student loans?

  • The best way to protect your credit is to always make your payments on time and in full.
  • When you make a payments, it is applied to fees, then interest, and then principal. Extra payments can save you time and interest. No late fees are charged for loans owned by the Department of Education (ED).
  • Each loan you receive appears on your credit report as a separate account. Your payments will be recorded this way too, even if you’re making a single payment to one servicer.
  • When your loan is report delinquent depends on whether it’s a private or federal student loan.
    • Private student loans may be reported delinquent as early as 30 days without a payment.
    • Federal loans owned commercially in the Federal Family Education Loan (FFEL) program are considered delinquent at day 60.
    • Federal loans (Direct and FFEL) owned by ED are reported delinquent at day 90 of no payment.

What happens if I miss a student loan payment?

  • The first day after you miss a payment due date, your loan becomes delinquent.

UPDATE! U.S. Department of Education (ED) announced a one-time temporary program that offers benefits to borrowers with federally-owned student loans who fall behind on their payments during the first 12 months following the end of the pandemic payment pause. From October 1, 2023, to September 30, 2024, missed monthly payments on your federally owned student loans will not be reported to credit reporting companies, placed in default, or referred to debt collection agencies. The Department of Education has directed its servicers to apply administrative forbearances to accounts that become delinquent during the on-ramp.

Visit ED’s website to learn more about this temporary “on ramp” period .

After the on-ramp period ends, accounts that become at least 90 days delinquent will be reported to the nationwide credit reporting agencies. Borrowers who continue to miss payments risk defaulting on their federal loans.

When does default occur?

  • 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. Reliable lenders will want to work with you to help you get out of default.
    • Federal loans offer rehabilitation and consolidation.
    • Private lenders may be willing to negotiate a deal with you.

Visit ED’s website to learn more about the Fresh Start Initiative .

How can I get rid of my student loans?

Outside of repaying your loans in full, ED offers multiple options for loan forgiveness, cancellation, and discharge for your federal student loans.

There are options available for paying off your private student loans. 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.

Learn more about ways to pay off your student loan debt.

Take control of your loans

Now that you understand the ins and outs of your loans, let’s go over some strategies for getting them paid off as quickly and smoothly as possible.

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 .

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.

Save yourself time and money

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. Make sure your servicer has your current mailing address, phone number, and email address. Open their mail and answer their calls so you find out about problems quickly, before consequences snowball.

Keep good records. Save all the mail from 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. Interest continues to accrue during forbearance for all federal loans and during deferment for unsubsidized loans, which could make them more expensive than enrolling in an income-driven repayment plan, especially the new SAVE plan .

Stay on track with income-driven repayment (IDR)

An income-driven repayment (IDR) plan can reduce your monthly payment to as low as $0. Use ED’s Loan Simulator to choose the right plan for you.

Learn about SAVE, the newest IDR plan, and how to enroll. The SAVE plan is the most affordable student loan repayment plan in history. It may provide you with the lowest monthly payments and reduced times to getting loan forgiveness if you borrowed a small loan. Also, under the SAVE plan, if your monthly payment doesn’t cover the accrued interest, that interest will not be charged to you. Instead, it will be forgiven, meaning your loan balance will not grow. Visit ED’s website to learn more about SAVE and how to enroll .

Automate your IDR recertification. Borrowers enrolled in IDR plans must annually recertify their income and household size. As part of the FUTURE Act, you can provide consent to ED to automatically recertify your IDR payment based on information from the Internal Revenue Service (IRS). By consenting, you allow ED to receive your tax return information and your monthly payment will be automatically adjusted without you having to recertify each subsequent year. If your income has changed from your most-recent tax return, you can always submit additional documentation to have your monthly payment reviewed.

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. These plans allow repayment flexibility based on your income (or lack thereof) you may be eligible for a lower monthly payment, possibly as low as $0, through an income-driven repayment (IDR) plan.

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. Keep in mind that a monthly payment will be applied against outstanding interest before it will be applied to your loan principal. In the new SAVE plan, any interest that remains after a monthly payment is applied will be forgiven by ED and your balance will not grow. Call your servicer to understand how the SAVE plan can help you reduce the cost of repaying your federal student loans.

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. Learn more about saving for retirement.

Getting an IDR plan for Parent PLUS Loans

Income-Contingent Repayment (ICR) is the only income-driven repayment plan available to Parent PLUS borrowers. Getting on ICR is also the best way to pursue Public Service Loan Forgiveness (PSLF) for your Parent PLUS loans. On ICR, your loan balance will also be forgiven after 25 years.

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. Learn more about your next steps from the PSLF Help Tool.

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. Reductions in federal student loan interest should happen automatically; check your statements to make sure. Contact your private student loan servicer to request a rate cap.

There are other benefits for active-duty servicemembers with Direct Loans. Check out our guide to student debt for servicemembers and ED's guide to federal loan benefits for servicemembers.

Avoid scams and 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. Unless it will increase your earnings, more debt could make your financial situation harder in the long run.

Watch out for scams. You may get letters, emails, calls, or text messages advertising loan forgiveness, but you can check those offers against the only federal student loan forgiveness programs. Never share your loan or bank information, or your login. Learn the other warning signs of student loan scams.

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.

Free, qualified help is available. Credit counseling nonprofits, which are different from credit repair companies, can help you make a plan to get out of debt. You can look for one near you by searching “credit counseling nonprofit” with the name of your city or town. You can also search for “free student loan advice.”

Take action when you run into problems

First, contact your servicer. Below are some questions to consider asking in different situations. If you’re unsure if the answers you receive are accurate, call back and talk to a different customer service rep, or ask to speak to the servicer’s supervisor.

Rehabilitation and consolidation each have pros and cons. Asking your loan servicer these questions can help you decide on the best approach for your circumstances.

About rehabilitation:
  • What will be my monthly payment?
  • When will my first rehabilitation payment be due? When is the soonest I can be finished rehabilitating my loan?
  • When will wage garnishment stop?
About consolidation:
  • Are my loans eligible for consolidation? What is required to make them eligible? (For example, you may need to get your garnishment order lifted.)
  • Do I need to make payments before applying for consolidation? Can I reduce my collection fees by making payments?
  • What will be my new interest rate and payoff date?
  • What is my outstanding interest? (Paying this off before consolidation will help keep your debt from growing.)
  • Will I lose any benefits by consolidating? (For example, you may lose progress towards loan forgiveness under PSLF or income-driven repayment.)
About both:
  • How much will I owe in collection fees? What can I do to avoid or minimize those fees?
  • When will I get out of default?
  • When will I regain eligibility for federal student aid?
  • When will this start? Do I need to make my next payment?
  • How long will this last? If I still can’t afford my payments when this relief ends, can I request an extension?
  • How much interest will accrue during the forbearance?
  • Will interest be capitalized when the forbearance ends? (Capitalization adds the interest to the principal balance, meaning you will pay interest on interest.)
  • What’s the deadline for paying off the accrued interest before it capitalizes?
  • How will the missed payments be made up? Will my monthly payment go up or will I keep making payments beyond my original payoff date?

You have other options for help