Morgan Stanley
  • Wealth Management
  • Dec 6, 2021

5 Strategies for Managing Your Student Loan Payments

Paying off student debt is no small feat, but there are steps you can take to simplify the process.

A college degree can unlock a world of personal and professional opportunities. At the same time, it might also leave you with a mountain of debt, making it tough to meet your short-term financial obligations and long-term financial goals.

Getting your student loan debt under control can be a challenge, but there are ways to make the process more manageable. Let’s go over five popular repayment strategies to consider.

1. Align Your Budget with Your Goals

Your monthly student loan payment is likely fixed, but if you can manage more than that amount, you can generally pay off your debt sooner. Doing so will likely require a shift in your budget. But let’s be honest—it can be tough to free up funds when your resources are already constrained. That said, many of us are spending more than we realize on things that don’t add value to our lives. Take the time to go through your credit card and bank statements to see if there are any extra monthly expenses you can reduce or eliminate, such as streaming services you’re not watching or memberships you’re not using. Even small savings can really add up when applied to your student loan balance.

2. Consolidate or Refinance Your Student Loans

Even if you have every intention to make your payments diligently and on time, it can be easy to overlook a bill when you’re juggling several loans from different servicers. Consolidating or refinancing your loans so you only have to make one payment could make the task easier.

If you refinance private student loans, you may be able to secure a lower interest rate, which can lead to monthly and long-term savings. You may have the option to refinance federal student loans with a private lender, but keep in mind that there are potential downsides, such as giving up the benefits and protections that federal loans provide. Also, be aware that using a Direct Consolidation Loan for your federal student loans is more about convenience than savings. By taking the average of your federal loans’ interest rates, this consolidation loan can lower your monthly payments but extend them over a longer period of time. Therefore, you probably won’t see long-term savings unless you pay off the loan early.

3. Set Up Automatic Payments

Another way to avoid missing or making late payments is to set up auto-pay. Many loan servicers allow you to opt into automatic deposits. Alternatively, you can set up automatic bill pay through your bank or credit union. 

4. Allocate Windfalls to Debt

We sometimes find ourselves coming into extra cash, whether it’s from a bonus, tax refund, inheritance, settlement, or equity compensation payout. There are countless options for using a windfall, but if paying off your student loans is high on your list of financial goals, consider allocating at least some of it to this purpose. And if you get a raise, you might also consider putting a percentage of it towards your loans each month. Again, making more than the fixed monthly payment can help you pay off the debt faster. 

5. Pay Down Interest Even During Deferrals

There are times when you may defer payments on your student loans—because of a grace period, forbearance, or a qualifying event, like enrolling in more schooling. But stopping payments altogether can expose you to capitalized interest, or unpaid interest that is added to your total balance, ultimately increasing the amount you have to repay. While it can be tough to continue make interest payments when money is tight, doing so can keep capitalized interest at bay and save you in the long run.

The Bottom Line

Repaying student loan debt is tough task, but there are ways to make it more manageable. Taking a few strategic steps can help you simplify the repayment process and make progress towards your goals.