Repaying over 100k in student loans is a huge challenge. If the debt comes from undergraduate studies, it can be even more difficult.
Unlike graduate school, where federal loans are practically limitless, undergraduate students usually need private lenders to rack up $100,000 worth of student loans.
A large amount of private debt makes this particular challenge especially difficult. Fortunately, there are several tactics borrowers can use to keep things manageable.
Focus on Repaying the Private Loans First
Traditionally, borrowers are advised to knock out the debt with the highest interest rate. From an accounting perspective, this is usually the preferred approach.
Instead, borrowers with larger undergraduate debt should consider eliminating their private loans first. Private loans have less forgiving repayment terms than federal loans. Federal loans also include borrower protections like income-driven repayment and student loan forgiveness.
In many cases, the best strategy will be to get the lowest possible monthly payment on the federal loans and focus your efforts on the private loans.
Borrowers looking to lower their monthly federal loan payment should check out the Department of Education’s Loan Simulator. It is a great tool for exploring different federal payment options.
Use Graduate School to Convert Undergraduate Private Debt to Federal
If you are currently a graduate student, or soon-to-be a graduate student, you can get creative with your student debt.
There is no way to directly convert private student loans into federal student loans. However, there are ways to indirectly convert private debt into federal debt.
Suppose you earn some money at a job over the summer. Rather than using your income to borrow less the following year, that income can be used to pay down existing private debt. Even though your total debt stays constant, it becomes far more manageable. Essentially, you are transforming private loans into federal loans.
This strategy is one of several different tactics that can be used to convert private loans into federal loans.
Refinance the Private Loans
Student loan refinancing is a common method of making private debt more affordable.
Many borrowers face interest rates of 6-8%, while others are in double figures. These high interest rates make debt elimination a struggle.
Refinance lenders like SoFi and Laurel Road advertise rates starting at around 2%. However, these excellent rates are normally reserved for borrowers with excellent credit who are willing and able to pay off their loans in five years. A more realistic option for many borrowers might be a 20-year loan. These loans have interest rates starting in the 4-5% range and offer the most affordable monthly payments.
Sherpa Tip: Only refinance private loans as you begin repayment. Refinancing federal loans turns them into private loans. Refinancing federal loans might make sense at some point, but because there is no way to “undo” a student loan refinance, borrowers should proceed with care.
An Increased Salary is a Huge Boost
In the category of the incredibly obvious, making more money is a big help.
In practice, this might mean taking a less desirable, but higher paying job. It could also mean moving to a new city to find more income.
Some borrowers add a second job or “side hustle” to bring in extra cash.
Another option might be additional education. If your undergraduate degree doesn’t lead to the necessary jobs, a year or two of grad school could be the ticket to a more lucrative position.
Saying “earn more money” isn’t particularly insightful or compassionate to the many people doing their best to manage their debt. Unfortunately, it is a harsh reality of life with large amounts of private student loans.
Ultimately, repayment of massive student debt is fairly similar to the repayment of a smaller amount of debt. The strategy doesn’t change much. It is just more difficult.
However, with more debt, minor changes can make a big difference.
Borrowers should pay extra close attention to the following:
- Options for student loan forgiveness – Public Service Loan Forgiveness gets all of the attention, but there are at least a dozen different forms of student loan forgiveness.
- Lower your interest rates – Refinancing is the most common way to get a lower interest rate on student loans, but there are many ways to get a better interest rate on your debt.