How to Manage Student Loan Debt

You can manage student loans. Just take it one step at a time. Start by budgeting in a way that works for you, then set clear goals to stay on track, team up with an accountability partner, and build a repayment plan that makes sense for your life.

Let’s explore more.

Understanding Your Student Loans Before You Graduate

Subsidized vs. unsubsidized loans, grace periods, and loan servicers are must-know terms when you're managing your student loans in college. 

Subsidized vs. unsubsidized

Before you receive your diploma, understand the types of loans you’ve taken out and how repayment will work. Federal student loans generally fall into two categories: subsidized and unsubsidized.

The short version: Subsidized loans don’t accrue interest while you’re in school at least half-time; the government pays interest on your behalf. Unsubsidized loans, on the other hand, begin accumulating interest as soon as funds are disbursed—even while you’re still studying.

The longer version: Functionally, subsidized loans act like zero-interest loans that turn into regular loans once you graduate. Generally, this makes subsidized loans preferable to unsubsidized, which, in turn, are usually preferable to private loans. Unsubsidized loans do accrue interest, but interest is flat, predictable, and doesn’t snowball until you graduate.

Grace period

Another key concept is the grace period—typically six months after graduation—before you must begin repayment. You don’t have to make loan payments the instant you graduate. You have a little breathing room. This gives you time to set up a payment plan, secure income, and so on.

One thing to clarify: interest may continue to build during this time on unsubsidized loans, increasing the total amount you owe. This interest is added to your loan principle after the grace period, an event known as capitalization. You may want to pay down interest before capitalization; doing so may reduce long-term expense.

Loan servicer

Know who your loan servicer is. Loan servicers are the go-betweens for you and your lenders. You contact your servicer to change billing and repayment details (like when you pay or how much), among other things.  

If you need to make a change, reach out early. Loan servicers can be flexible, but you might be penalized once you cross important thresholds (like 30 or 90 days late). Ask your servicer to make changes while your payments are current. For example, say your payday changes. Contact your servicer right away, and ask them to update your due date to a couple of days after payday. 

If you have multiple loans, you may have more than one servicer. Plus, private loans are often sold. The result: your loan’s the same, but your servicer has changed (the new servicer usually sends you mail when this happens). Track online accounts and balances. If you lose track of who’s who, check the student.gov portal (federal) or your last statements or credit report (private). 

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Strategies for Managing Student Loans While in School

To manage student loans before you graduate:

• Keep the grades/credits that protect grants and scholarships.

• Put a few hundred bucks into an emergency fund.

• Pay down high-interest debt, like credit card debt.

• Cover interest on unsubsidized loans.

Grants and scholarships have some of the biggest impact. It’s free money that reduces the cost for you to attend school, and could reduce your reliance on debt.

Maintaining a small emergency fund can prevent dipping into credit when you're low on cash. It’s like preventative care for your wallet. Without an emergency fund, you’re vulnerable to whatever financial tornado strikes. Stay interest-free with a cash cushion.

Credit card debt has a super-high APR, usually above 20%. Using credit cards makes everything cost more. 

If you have unsubsidized federal student loans, that probably means you’re being charged interest while you’re in school and during your grade period. If you don’t pay the interest, it’ll be added to your loan balance. Then you’ll pay interest on the new, higher amount. Pay your interest whenever you can.

Work-study programs

Working part-time or participating in work-study programs can also provide income to put toward interest or living expenses, helping you borrow less overall. These are jobs specifically for students. The income doesn’t count against need-based aid, and hours are typically scheduled around classes.

It’s not all sunshine and rainbows, though. What you don’t get: loan interest breaks, forgiveness, or guaranteed jobs. Plus, off-campus jobs often pay better. The main reason to enroll in work-study is for flexible, on-campus work, and to protect eligibility for need-based financial aid next year.

Keep loans you accept to a minimum

Borrowing wisely is equally important. Rule of thumb: Only accept the loan amounts you truly need, not the full amount offered. Over-borrowing may feel comfortable right now, but it could strain your finances down the road. There are some exceptions—subsidized loans might be worth tapping for a low-risk cushion—but in general, it’s not worth doing.

You have some flexibility to change your mind. If you borrow too much, you can return it—there is a 120-day window in which you can return all or part of your federal loans. Interest or fees paid on money returned is canceled. 

Note: If your school costs aren’t as much as expected, you could get a refund check from the school. These checks are not free money. It’s really loan money above and beyond what the school charges to cover tuition/fees/housing. Return it within 120 days to reduce your overall loan amount, or park it to pay for legit school-related bills (but remember that you’ll have to repay it eventually as part of the loan).

How to Manage Student Loan Debt and its Financial Effects

Budgeting, debt consolidation, and refinancing are key tools for managing student loan debt effectively. While you’re managing debt, keep an eye out for capitalization deadlines and negative amortization, which may call for a change in your strategy.

Budgeting

A budget gives you insight into where your money is flowing. You may find areas where you can cut back on spending so that you can make more headway against your debts.

You can keep it simple. The point is to know who to contact if necessary, track deadlines, and remind yourself why you’re doing more than the bare minimum (strategic goals).

Here’s what to write down about your student loans:

• Who to contact (servicer name and how to log on)

• Next due date (and is autopay on or off?)

• Current repayment plan type and payment amount

• The one date that matters next (capitalization, Income-Driven Repayment recertification, or grace period end)

• Your goal (e.g., pay accrued interest on unsubsidized loan before capitalization)

Two numbers to glance at monthly:

• Payment (is it still affordable?)

• Accrued interest bucket (is it growing? if yes, can you knock it down?)

Rinse and repeat for each loan. One sticky note per loan keeps things simple and easy to track. 

Consolidation

Student loan consolidation means combining loans to make them easier to pay. Federal student loans might be consolidated to make payments simpler (one payment, one servicer), or to qualify older loans for certain federal perks exclusive to newer loans, including Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF). However, your interest rates probably won’t be lower, and might even tick up.

Private student loans can be consolidated to simplify payments or reduce interest rates. For example, you might consolidate two high-interest loans into a single loan with a better rate. You can consolidate federal loans into private loans, but not vice-versa. Be careful about making federal loans private, because you lose perks exclusive to federal loans, like IDR, PSLF, and forbearance. Only do it if the rate cut is compelling, and you're sure you won’t need these federal safety nets.

Refinancing

Refinancing switches you to a new loan, potentially with lower rates. Federal loans don’t offer refinancing options. To refinance federal loans, you have to take them private.

Potential perks of refinancing: 

• Lower rates

• Lower monthly payment

• Frees any loan co-signer from prior student loan

Potential downsides of refinancing:

• Refinanced federal loans lose federal protections.

• High APR could be disguised by low monthly minimum

• Potential tax consequences

The Consumer Financial Protection Bureau can be a helpful source of guidance if you’re considering refinancing or consolidating student loans. 

Capitalization

An important deadline to track is capitalization, when unpaid interest is added to your principal balance. This is relevant to unsubsidized student loans. Unsubsidized loans accrue interest while you’re in school. The interest charged is a flat rate—it doesn’t change. 

Say you have a $5,000 loan with a 10% flat rate. You’ll be charged $500 in interest yearly. In four years with no payments, your loan accrues $2,000 in interest.

Your principal balance (the original $5,000) is kept separate from your interest balance. This changes upon your graduation—usually after a grace period—during capitalization. This event adds your unpaid interest to your principal ($5,000 + $2,000 = $7,000). Now, you pay interest on interest.

If you cover some or all of your unsubsidized interest balance before it capitalizes, you can reduce your total costs. Some student borrowers choose to pay on this interest while in school.

Negative amortization

Negative amortization is when your payments don’t cover the interest that accrues, so your balance goes up even though you're making minimum payments.

This sometimes happens when you’re on an income-driven repayment plan. Minimum payments are tied to low income—if your income is low, your minimum payments might be extremely low, putting you below the threshold for covering interest.

If your monthly payments are too small, the loan gets bigger and bigger because of interest capitalization. But if you’re on-track for loan forgiveness (when a plan forgives your loan after a certain number of payments), it might not matter so much.

Good financial habits

Here are five habits you can start building before graduation and loan repayment:

• Automate payments. Toggle autopay to set-and-forget. Set the due date a couple days after payday.

• Pay the monthly interest drip. Pay the interest on unsubsidized student loans. A little bit now can save you down the road.

• Budget your loans. Keep the key info on sticky notes, one per loan. Keeps your goals, numbers, and deadlines front and center.

• Return what you don’t need. Return refund checks within the 120-day deadline so the associated fees and interest vanish.

• Create a paper trail. Keep your last annual statement, records of big payments, employment certifications (for Public Service Loan Forgiveness), and emails/case numbers after calls.

Create a Concrete Budget to Manage Student Loan Debt

A budget is key to managing student loan debt. You can make a budget plan even if you hate math by using a spreadsheet or a budgeting app.

Use a spreadsheet

Start with two columns: One for income and one for expenses. Group expenses by fixed, discretionary, and debt/savings.

Types of expenses and examples of expenses that fit into each category: 

• Fixed expenses are expenses you must pay every month. Rent/mortgage, utilities, phone, internet, insurance,  transportation, groceries.

• Discretionary expenses are choices, such as dining out, shopping, entertainment.

• The Debt and savings category includes student loan payments, other debt payments, and money for an emergency fund. 

The upside of using a spreadsheet is that it’s free and easy to customize. The downside is that it can take time to set up, especially the first time. Once you’ve made a template, it gets easier.

Use a budgeting app

Look for a budgeting app that lets you lump together similar expenses. The visual makes it easy to understand where you spend most. 

The upside of using a budgeting app is that it tracks your income and expenses automatically. The downside: It’s not as customizable as a spreadsheet, and free budgeting apps may upsell you. It may be worth trying regardless, if it helps you manage debt.

Not sure which student loan repayment plan to take, if any? Check out the Federal Aid student loan calculator for repayment plans. 

Set financial goals

A budget without a goal is like a vehicle without a destination. Pick a goal, and translate it into a monthly number. Park that number into your plan, and do a monthly check-in. Is it still affordable? Are you still hitting your goal?

Say your goal is “no capitalized interest.” Your unsubsidized loan is accruing $58 in interest monthly. So you drop a line into your budget that says, “Pay $58 monthly.” Ask yourself monthly if it still checks out. Do you need to tweak some numbers or add income? If it checks out, your golden. Your balance doesn’t grow, and you don’t pay interest on interest.

Use your budget as a map to move you toward a clear outcome each month.

Find an accountability partner to help manage student loan debt

An accountability partner can be a great resource. It’s motivating to check in with someone, and to be held accountable when you’re managing debt. Since debt can be a sensitive topic, use check-ins that preserve privacy:

• Report what you did or didn’t do instead of balances. For example: “I called my servicer” or “I made a monthly payment.”

• Join an anonymous community like Reddit’s r/StudentLoans.

• Speak to a campus financial counselor to keep things private and professional.

Develop a Plan to Manage and Pay off Student Loan Debt

A repayment plan is key, so beyond the standard 10-year federal plan, consider these options.

DIY your plan

Tackle student loan debt with the avalanche or snowball method.

• Avalanche: Pay off the loans from highest interest to lowest, which minimizes interest costs.

• Snowball: Clear the smallest balance first, then go to the next smallest, and so on, for quick wins and momentum.

Note: When working with a student loan servicer, you may need to manually adjust the order in which you pay off your loans. Use the website or contact your servicer to change payments.

Consolidate loans

Federal student loan consolidation takes your federal student loans and combines them into one loan with one monthly payment. You can consolidate your student loans through the U.S. Department of Education at no additional cost if you have multiple federal loans

You can also consolidate federal student loans to a new private loan, and you can consolidate private student loans into a new private loan. This is called student loan refinancing.

In most cases, you extend the loan term and the total amount (but not the rate) of interest you pay. This spreads out monthly payments and makes them smaller, but also costs more in the long term.

Refinance debt

Student loan refinancing offers a new loan with potentially lower rates or terms. You can refinance by shopping around for loans.

Types of student loan refinancing:

• Fixed rate: These loans offer stable interest rates.

• Variable rate: These loan rates rise and fall depending on market conditions.

Note: Refinancing federal loans with private lenders ends federal perks and protections such as forgiveness programs. Consider this carefully.

Debt Relief Options to Manage Student Loans

Federal and private student loans offer separate avenues to manage debt through debt relief.

Federal student debt relief options

Federal student loans offer many debt relief options to make repayment more manageable. 

Income-Driven Repayment (IDR) plans: These plans base your payments on income and family size, with potential forgiveness after 20-25 years. These are the current (2025) IDR plans:

Public Service Loan Forgiveness (PSLF): Forgives remaining balances after 120 qualifying payments while you’re working full-time for certain employers, like government or nonprofits. Recent changes under the new administration may change the details, so check at studentaid.gov.

Other programs: Teacher loan forgiveness (up to $17,500 for low-income school teachers), health professions forgiveness, and discharge options for disability, school closure, or borrower defense. You can explore these plans in detail at StudentAid.gov.

Forbearance: Pauses or shrinks payments temporarily when you’re experiencing hardship. To get forbearance on a loan, find your loan servicer on StudentAid.gov or by checking your loan statement. Explain to them your situation (such as low income, lost job, or medical issues). Submit your request online or over the phone.

Unsubsidized loans usually charge you interest during the paused payments. However, subsidized loans may cover interest during a pause. Check with your loan servicer for details. 

Updates to the Saving on a Valuable Education (SAVE) repayment plan

As of 2025, you can’t enroll in the SAVE plan. If you’re already enrolled, you’re considered in forbearance. So you don’t make monthly payments, and interest is charged to your balance. Eventually, you’ll have to move to another plan.

If you’re on the SAVE plan, you can apply for other income-driven repayment plans. These include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn Repayment (PAYE). Apply through the Federal Aid government website.

Details may change as the federal government irons out specifics regarding transitions and new plan options like RAP. 

Private student debt relief options

Private loans don’t have all options their federal counterparts do, but forbearance, bankruptcy, and debt settlement are possible options for private student debt relief.

Forbearance: This pauses or shrinks payments temporarily. Private lenders aren’t required to do this, but some will if you explain your situation and ask for it. This could give you time to pad your checking account for future payments, or to find lasting debt relief. 

Private lenders almost always charge interest while your payments are paused. Call and talk to your creditor about forbearance to discuss details.

Bankruptcy: This could clear some student loan debt. It’s more difficult to clear student loan debt during bankruptcy than other debt types, and you must prove it causes severe financial hardship. However, some student debts can be cleared. You can find out more via the Consumer Financial Protection Bureau.

Debt settlement: This means you settle with your lender for less than you owe, but they still consider it full repayment. You can DIY debt settlement negotiation, or hire a professional debt settlement company to negotiate on your behalf. These companies are incentivized to get you the best deal. 

Avoiding Student Loan Scams and Getting Help

The rise in repayment challenges has unfortunately fueled a surge in student loan scams. Common warning signs include companies promising “instant” loan forgiveness, demanding upfront fees, or asking for your FSA ID and password. 

Red flags:

• Upfront processing fees

• “Give us your FSA ID/password”

• Urgency, as in, “Do this now!”

• Weird payment methods (gift cards, Cash App, specific account numbers)

Remember: you never have to pay for federal student loan help. Legitimate programs are always free through your servicer or the Department of Education. To be safe, only log in via StudentAid.gov or your servicer’s portal—never via links in texts or emails.

If you need guidance, rely on reputable sources like the Consumer Financial Protection Bureau or your school’s financial aid office. Nonprofit credit counselors can also help. If in doubt, double check any advice with official government resources. Report scams to FTC.gov and the CFPB.

Special Considerations for Different Borrowers

Some borrowers have a few extra rules or shortcuts. If one of these sounds like you, check with your servicer or at StudentAid.gov.

Parent PLUS: Income-based payments are only available if you first roll the loan into a Direct Consolidation Loan, then pick this kind of repayment. Payments can be higher than for other such plans.

Public service (government, some nonprofits): You need Direct Loans, qualifying employment, and an income-based plan for Public Service Loan Forgiveness (PSLF). If you have old FFEL or Perkins loans, you can consolidate to a Direct Loan.

Grad students: There are no subsidized loans in grad school, so interest builds while you’re in class. If possible, pay it down early, before capitalization.

Private loans: There are no federal perks like IDR or PSLF. Your tools are refinancing, changing the term, or asking the lender about hardship options.

In default (federal): You may be able to rehabilitate a loan (as a one-time option) or consolidate to stop collections.

Variable rates: With variable rates, payments can jump. Either refinance to a fixed rate (if you don’t need federal benefits) or aim to send extra money here first.

Disability: Total and Permanent Disability discharge may wipe out federal loans.