Many professional degrees can result in well over $100,000 of student loan debt. Although it might be a good investment long-term, managing a massive amount of debt can be overwhelming.
Fortunately, there are many ways to strategically repay your loans, some of which involve loan forgiveness that require a minimal monthly payment.
Here are some of the most effective strategies for repaying six-figure student loan debt:
Loan Forgiveness With an Income-Driven Repayment Plan
One of the primary perks of having federal student loans is the potential to eventually have your loans forgiven. But how does that work?
By enrolling in an income-driven repayment (IDR) plan, your monthly payment is based on a 10%-20% of your discretionary income. After 20 to 25 years of qualifying payments, your remaining balance is forgiven.
This is a great option for high-debt borrowers who work in the private sector and owe more than 1.5 times their income.
For example, let’s say you’re an attorney who owes $200,000 and earns less than $100,000 annually. An IDR plan will keep your monthly payment as low as possible, while you work toward other financial goals like opening your own private practice.
Unfortunately, current IDR plans include a tax penalty. Any remaining balance that is forgiven is treated as taxable income. You’ll need to set aside money each month into a non-retirement savings account to help plan for this tax bomb.
Public Service Loan Forgiveness
If your career choice includes working in the public or nonprofit sector — say as a public defender or at a nonprofit hospital — then you may qualify for the Public Service Loan Forgiveness (PSLF) program.
Under the PSLF program, your eligible federal loans are forgiven after 10 years’ worth of qualifying payments.
During that period, you’ll make payments under an IDR plan which minimizes your monthly payments and maximizes your loan forgiveness amount.
And, unlike IDR forgiveness, your forgiven loan balance isn’t taxed under PSLF.
To be eligible for PSLF, you must:
- Work full-time for a government or nonprofit organization.
- Have federal Direct Loans (or consolidate other existing federal loans into a Direct Loan).
- Make 120 qualifying payments on an IDR plan.
If you’re nearing graduation and will have over six-figures of debt, PSLF is worth exploring for your future career.
However, you will need to weigh the student loan savings versus the pay cut you might take by choosing to work in the public or nonprofit sector.
Profession-Based Student Loan Assistance
There are various student loan relief programs within certain professions. Many of these assistance options require a commitment to work in an underserved area in exchange for a predetermined amount of loan forgiveness.
Here are some examples of the most common forgiveness programs by profession:
- Physicians and nursing professionals. There are many forgiveness options for medical professionals. Top programs include the National Health Service Corps Loan Repayment Program and the Nurse Corps Loan Repayment Program.
- Lawyers. Lawyers may have access to programs like the Department of Justice Attorney Student Loan Repayment Program (ASLRP) or the John R. Justice (JRJ) Grant Program.
- Teachers. Teachers may qualify for the federal Teacher Loan Forgiveness program which provides $5,000 to $17,500 worth of forgiveness, depending on their subject matter. Most teachers, however, are better-off sticking with PSLF to save the most money.
Each state has its own student loan forgiveness programs, too. Check with your state and any affiliated professional organizations for available loan assistance programs that can help lower your six-figure student debt.
Refinance Your Student Loans
If you owe less than 1.5 times your income and have a solid emergency fund, you could save money by aggressively tackling your debt.
In this case, you’re aiming to pay as little as possible in interest, while eliminating your student debt within 10 years or less.
Refinancing your student loans can help you achieve this goal faster by lowering your interest rate.
If you have private loans, shop for new interest rates at least once per year. There’s a caveat, however — you’ll lose federal benefits and protections by refinancing your federal loans.
Before moving forward with student loan refinancing, weigh the pros and cons and consider whether you’ll need federal protections, like deferment and forbearance in the future.
Once you refinance, you’ll want to throw as much money as you can at your debt to repay your student loans as quickly as possible.
Make a Repayment Plan
If you have over six-figures of student loan debt, you need to make a strategic repayment plan.
Loan servicers are known for providing bad advice, and your student loans won’t just go away if you ignore them. Tackle your debt with a clear plan to avoid accumulating even more debt — which is easy to do when you’re starting off with such a high balance.
Start by exploring repayment plans and forgiveness options. And then, weigh these strategies against your other financial goals to determine your best course of action.
