Manage Student Loan Debt Carefully
Many people graduate college with significant amounts of student loan debt. The average amount borrowed by 2022-23 bachelor’s degree recipients who took out loans to pay for college is approximately $29,300, according to the College Board’s “Trends in Student Aid 2024 report.”
The burden of student loan repayment can force young adults to delay major life milestones, such as purchasing a home, starting a family and saving for retirement. In addition, defaulting on student loans can harm a borrower’s credit rating and result in garnishment of wages.
Moreover, the implications of student loan debt often extend to family members. While students may independently qualify for federal student loans without a co-signer, most private loans require a creditworthy co-signer — typically a parent — who becomes equally responsible for repayment. Some lenders offer a co-signer release option after a certain number of on-time payments. However, this isn’t guaranteed. It depends on the lender’s policies and the borrower’s income level and credit score at the time of release.
If your family is struggling to afford higher education costs, you’re not alone. Here are eight tips to help you get a handle on student loans and set your student on the path toward financial independence.
1. Do Your Homework
Decisions made before and during college can significantly affect your final debt tally. When choosing a school, consider it an investment decision, not an emotional one. Compare the total costs of each school on your list, including:
- Tuition and fees,
- Room and board, and
- Books, supplies and equipment.
Many parents experience sticker shock when they add up the full cost of attending college. Fortunately, you probably won’t have to pay sticker price if you work with the college’s financial aid department. After you’re accepted into a school and complete the requisite forms, you should receive a financial assistance package that states the amount and type of financial aid offered.
Also evaluate each school’s job placement rates and average starting salaries for graduates in the majors you’re mulling. Consider whether the career that corresponds with your preferred major will provide you with enough funds to cover the loan payments that will begin soon after you graduate.
To avoid borrowing more than you need, it’s important to reassess your expenses each semester. Cover as much as possible with federal direct loans before applying for private loans. Also take a fresh look at scholarship and work-study opportunities every semester.
2. Create a Detailed List
It’s important to prepare a spreadsheet that lists all your loans so you can compute the total amount of debt. This schedule should break out the details for each loan, identifying the type (federal or private, subsidized or unsubsidized) and the terms, including:
- Interest rate,
- Monthly payment,
- Current and principal balances,
- Repayment rules, and
- Grace periods.
Compiling this information while your student is still in school helps keep track of loans taken out each semester (or draws on open-ended private loans that allow borrowers to withdraw funds as needed up to a pre-approved credit limit). After graduation, the schedule can be used to formulate a repayment plan and prepare monthly budgets.
3. Explore Repayment Options
Several options are available for repaying your federal direct loans. The Federal Student Aid Loan Simulator provides a helpful tool for comparing monthly payment alternatives.
If you have federal student loans, you might consider combining some or all of them into a Federal Direct Consolidation Loan. A consolidation loan has a fixed interest rate that’s the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest eighth of a percent. While consolidating your loans may slightly increase your interest rate, it will lock you into a fixed rate. You also may be able to consolidate some private loans into a single private loan at a lower interest rate.
Bear in mind that consolidation has potential downsides. For example, you could end up with a longer repayment period, which translates to paying more interest over the loan term. And you might forfeit certain borrower benefits — such as discounts or rebates — associated with your current loans.
4. Inquire about Loan-Related Employee Benefits
Your employer may provide various types of student loan assistance — which could be significant enough to influence your job choice. For example, through 2025, employers can offer up to $5,250 in student loan repayment benefits per employee per year tax-free under current law.
Additionally, under a provision of SECURE 2.0, employers can make matching retirement plan contributions to cover the qualified student loan payments (QSLPs) made by plan participants during the year. The change went into effect for plan years beginning in 2024. Employees participating in the following plans may be eligible:
- 401(k) plans,
- 403(b) plans,
- SIMPLE-IRAs, and
- Governmental 457(b) plans.
Note that special rules apply to SIMPLE-IRA plans.
In effect, this provision allows employers to make matching contributions to the retirement accounts of employees who aren’t actually contributing to their accounts but who are making student loan payments. This provision helps participants reduce student debt while simultaneously building retirement savings.
5. Take Advantage of the Student Loan Interest Deduction
You may be eligible to write off up to $2,500 of student loan interest as an above-the-line adjustment on your personal return whether you itemize or not. This deduction is available only to the person legally obligated to repay the loan.
However, the deduction is phased out based on modified adjusted gross income (MAGI), and the amounts aren’t that high. For 2024, the phaseout begins at $80,000 for single filers ($165,000 for married couples who file jointly). For 2025, the phaseout begins at $85,000 for single filers ($170,000 for married couples who file jointly). You also may be eligible for state tax deductions.
6. Make Extra Payments to Reduce Your Principal
Paying down the principal on your loans reduces your total interest payments. It can also allow you to pay off your debt faster.
For instance, if you switch from monthly to biweekly payments, you’ll make an extra payment every year. Over 10 years, you could trim a year off your repayment schedule. Alternatively, if you receive a year-end bonus or tax refund, you might consider putting the extra cash toward paying down your student loans.
Another strategy — known as the “debt avalanche” approach — calls for making an extra monthly payment on your highest interest rate loan. When that loan is paid off, apply the amount you were paying each month for the retired debt toward the loan with the next highest interest rate and so on. This strategy prevents excessive interest accumulation and allows you to tackle principal payments efficiently.
Important: When using the debt avalanche approach, continue making minimum payments on all loans to avoid penalties and keep accounts in good standing. You should also notify the lender that you want to apply the extra payments to the principal balance, not a prepayment of the loan’s next installment.
7. Enroll in Automatic Payment
Federal student loan programs grant a 0.25% discount on the interest rate to borrowers who set up automatic withdrawals from their checking accounts. Many private lenders offer similar discounts for automatic payments.
Aside from the discount, autopayments also ensure that you won’t miss any payments. This may be especially handy for young people who are adjusting to living independently and busy pursuing full-time careers.
8. Take Ownership
Effectively managing student loan debt requires a proactive approach, careful planning and financial discipline. One of the worst mistakes borrowers make is missing loan payments, assuming they’ll catch up later. If you’re having trouble making ends meet, you don’t have to struggle alone. Talk to your lender or another trusted financial advisor to assess your options and devise a realistic debt service plan that works for your situation.
Copyright 2025
This article appeared in Walz Group’s March 17, 2025 issue of The Bottom Line e-newsletter, produced by TopLine Content Marketing. This content is for informational purposes only.
