How to pay off your student loans

Morgan Stanley Wealth Management


Summary: Learn the options for how to pay off debt you took on to pay for school.

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With average monthly student loan payments of $460 that take approximately 20 years to repay,1 it’s harder for student loan borrowers to tackle goals like saving for a house, starting a business, or investing for retirement.

If you’re ready to pay down your student loan debt, here’s what you need to know:

How to get started

You may have a mix of both private and federal student loans to pay off. Your private loans will likely be from banks or other financial organizations. Your federal loans are backed by the federal government.

Each lender will give you a payment schedule and required monthly repayment amount. If you can afford it, you may want to pay more than just your minimum payment. By doing so, you could pay off your loan much sooner. Paying off high-interest debt as quickly as you’re able to may dramatically reduce the amount of interest that you pay over time.

Pay off private loans first

If you have extra money to put toward your loan payments—beyond your minimum required payment—consider paying off private loans as quickly as you can.

These loans may carry variable interest rates that could increase over time. Also, private loans tend to have less flexible payoff options than federal loans. This could be important if you later lose your job or otherwise have difficulty making loan payments.

Choose your federal repayment plan

When it comes to your federal loans, your loan servicing company may assign you to a particular repayment plan. However, in most cases you can choose from among several options. You can switch to a different payment plan later, if it’s a better fit.

Federal loan repayment plans include:

  • Standard: You make equal monthly payments over a set period of time, usually 10 years. This is the default repayment plan, unless you choose another option.
  • Graduated: Your payments are lower than the standard option at first. Every few years, your payments gradually increase to help ensure that you can pay off your loan within 10 years.
  • Extended: Your payments may either be fixed, like the standard plan, or start out lower, as with the graduated plan. The plan is structured to help you pay off your loan within 25 years. Note, though, that you will end up paying more interest with an extended repayment plan.
  • Pay As-You-Earn (PAYE): Your payments are 10 percent of your discretionary income. Payments are recalculated each year and are based on your updated income and family size.

Learn more about these and other repayment plans at Federal Student Aid

Ask your employer for help

More employers are beginning to offer student loan repayment as a benefit to their employees.

Legislation has made it simpler for employers to help their employees tackle student debt. The CARES Act (extended to 2026) contains provisions that remove tax barriers for both companies and their employees to participate in student loan repayment benefits. If offered, a company can make tax-free yearly contributions of up to $5,250 for your existing student debt, without increasing your gross taxable income. Consider asking about this benefit during your hiring process or annual review.

Consider loan consolidation

Rolling multiple student loans into a single, consolidated payment could simplify your finances and allow you to lock in a better overall interest rate. However, it’s important to research the loan-consolidation issue very carefully.

Be particularly cautious about consolidating federal student loans through a bank or other financial organization. The main reason: You’re actually paying off your federal loans and taking out an entirely new loan with the private lender. When you do that, you no longer have the option of qualifying for federal loan forgiveness in exchange for public service. You also lose your option to switch to federal income-driven repayment programs.

Also, many lenders won’t consolidate private loans unless they can offer you a significantly lower interest rate. In other words, they won’t consolidate your payments simply for convenience.

What if I can’t make my loan payments?

Talk to your private or federal loan servicer right away. It’s important that you don’t simply stop making payments. Doing so could seriously damage your credit and make it tough for you to qualify for hardship programs. Loan servicers typically offer several options for helping borrowers who are facing financial difficulties.

Be responsible about loan payments

The easiest way to say a permanent goodbye to your loan payments: Make them regularly and on time, and pay more than the minimum whenever you can. Once you’re feeling more confident about how you’re paying down your student debt, you can move on to saving for or financing other important priorities in your life.

The source of this Morgan Stanley article, How to Pay Off Your Student Loans, was published on August 5, 2022.

  1. EducationData.Org, Average Student Loan Payment, Updated March 1, 2022
  2. Federal Student Aid, Student Loan Forgiveness


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