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3 Strategies for Managing Education Debt

By Chris Warren

  • PUBLISHED August 07
  • |

You don’t have to be a math major to understand the burden that can come with college loans. According to the Federal Reserve, student loan debts now total over $1.3 trillion. And seven in ten graduates left school in 2016 with an average tab of more than $37,000 to pay off.

Those numbers are so big that they can seem almost abstract. But the importance of paying the loans off as quickly as possible is very real. Large student loan debts have a serious impact on the net worth of households, and they make people more likely to take on other forms of debt, according to a study by the Pew Research Center. Whether you’ve just graduated or your framed diploma is already gathering dust, managing your education debt, while reaching financial milestones like buying a car or home, is possible with the right approach. Here are three strategies:


Run the numbers. Not all student loans are created equal. Because the interest rates and repayment terms of loans can vary widely, take the time to find out which loans have the highest interest rates and target them for repayment first. One way to do that is to craft a budget that devotes extra money to paying down the principal of the loans with the highest interest rates. Once you’ve finished paying off the loan with the highest interest rate, take the same approach with the loan that has the second-highest interest rate, and so on. This way, you’ll pay less in interest over time than if you treated all of your loans equally.


Defer, but never miss a payment. More than 11% of student loans are delinquent or in default. And if that’s your delinquent loan, it can seriously harm your credit score, and make it much harder and more expensive to get a car loan or mortgage. Ignoring payments when you don’t have enough money may seem like the only option, but it’s not.

If you have a federal student loan, you can defer payments if you’re unemployed, and the government will often pay the interest for the duration of the deferment. Private lenders will also sometimes grant forbearance as well, though the interest accrued during the forbearance period may be added to the principal of the loan. The key is to always proactively communicate with your lender when you have difficulty making a payment.


Know your repayment options. The ideal strategy is to pay down the principal of your loans each month, and retire them as fast as possible. But life isn’t always ideal, and it’s helpful to know that there are options that can lower your monthly payments. Although federal loans are designed to be paid back over 10 years, it’s possible to enroll in income-based, extended repayment, and pay-as-you-go plans. These can cap your monthly payment at a percentage of your salary, and extend repayment over 25 years.

While convenient, those plans can be a double-edged sword. Your monthly payments will be lower, but the debt will last longer and you’ll often end up paying far more in interest. You may want to consider a repayment option that accommodates the reality of low entry-level salaries by increasing loan payments every two years. This allows graduates to adjust to the working world and then take advantage of higher salaries as they progress in their careers.

A former editor at Los Angeles magazine, Chris Warren’s writing has appeared in publications including The Los Angeles Times, Institutional Investor and National Geographic Traveler.

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