How to Manage Student Loan Debt

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Student loan debt is now greater than credit card debt for the first time in U.S. history. But did you know, student loans may not be charged off in bankruptcy? So, one way or another, you must find a way to pay them off or otherwise live with the big hit your credit will take as a result of non-payment. Fortunately, if yours are federal student loans, you’re in luck, as they offer more protections and options than their private student loan counterparts.

What is a Federal Student Loan Deferment?

Deferring a federal student loan means that, under certain circumstances, you are approved to postpone payment of the debt for a specified amount of time. Your federal student loan may be deferred if:

  • You are in graduate school or the military.
  • You are unemployed.

What is a Federal Student Loan Forbearance?

A federal student loan forbearance is similar to a deferment, in that you are approved to postpone payment of the debt, under certain circumstances, for a specified amount of time. However, unlike a deferment, a forbearance will continue accruing interest during the forbearance period, for which you will ultimately be held responsible. A forbearance should only be sought if and when you do not qualify for a deferment. Forbearances are common for those who are sick and unable to work, during which time the debt may be postponed for up to 12 months.

What is the Pay-As-You-Earn Plan?

If you are unable to make your monthly federal student loan payments, you may qualify for the pay-as-you-earn plan. This may lower your monthly payment, as it is based on a presumably more affordable percentage of your income. If the loan is not paid off within 20 to 25 years, then pay-as-you-earn forgives the remainder of the debt.

Can I Extend the Life of My Federal Student Loan?

If you are having trouble making your monthly student loan payment, and have already exhausted your deferment options, you may consider changing your payment schedule. While you are probably currently scheduled to pay your loan within 10 years’ time, you may be able to extend repayment another 15 years. Just keep in mind that, as with loan consolidation, extending the life of your loan to 25 years means compounding interest rates. So while your monthly payment may decrease, what you’re paying, in the long run, may increase considerably.

Can I Consolidate My Federal Student Loans?

Yes, you may consolidate your federal student loans. However, while this may have the benefit of lowering your monthly payment, in the long run, you’ll end up paying more, as consolidating your debt into one loan, while simultaneously lowering your monthly payment, means extending the life of your debt and, in turn, compounding interest fees. So, if possible, you are better served to find a way to pay your student loans as they stand now. However, the last thing you want is for your student loans to go unpaid, as it hurts your credit and, should it come to this, you cannot include student loans in bankruptcy. In other words, while you will pay more in the long run by extending the life of your loan, it may be a price you are willing to pay in exchange for protecting your credit.

Can I Pay Off My Federal Student Loan Early, Without Penalty?

Yes, unlike some other types of loans, you can pay off your federal student loan debt early, without penalty.

Under What Circumstances May a Federal Student Loan be Forgiven?

Once you have made 120 payments, the forgiveness of federal student loans may be possible if you are in any one of the following fields: law enforcement, early childhood education, public health, emergency management, the military, school-based services, and other public service jobs.

Are Federal Student Loan Payments Tax Deductible?

Yes, you are not required to pay taxes on income that goes toward paying down your federal student loan.

Where Can I Get More Information About Managing My Federal Student Loan Debt?

You should have been provided with loan counseling before and after receiving your federal student loan. For additional information and/or questions about options specific to you, contact your loan servicer. You may also find helpful the National Student Loan Data System at

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