Paying Off Debt from College

Category Student Loans
Education is getting more and more expensive. Student loans, credit cards and other debt accumulated while going to school can be an unnecessary burden to the student later in life. This page is about paying off debt from college.


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Kelly Ann Butterbaugh
August 18, 2010

The idea of the college loan is that tuition is covered while studying, and most loans only ask for repayment after graduation. For some loans, interest isn't calculated until repayment begins, again often after graduation. Colleges may offer their own loan programs, but the not-so-new federal loan program should also come under consideration when financing education. The Federal Direct Loan Program began in 1994. In order to stand out from other student loan opportunities, the Federal Direct Loan offers varying payment plans for students. There are problems with each, but there are also perks that may make this the perfect financing choice.

Same Old Same Old

The Direct Loan offers a payment option similar to most loans. After graduation over the course of ten years, students repay the loan and its interest in 120 monthly payments. Students who borrow significantly less may opt for a shorter payback period. Interest is charged only once repayment begins.

Income Contingency

A second option for Direct Loan repayment is the income contingent repayment option. This option is best for students who expect to see their earnings increase as they move through the workforce. For instance, they may be required to start their corporate climb in a low paying starter job. If the opportunity is wide for advancement in pay, this payment option may be ideal. The payment schedule follows the student up the pay scale, increasing monthly payments over the years. The payments are limited to 20% of the student's discretionary income each month; therefore, as the income rises so do the payments.

The problem with this plan is the student who doesn't see the instant success of his/her career choice. If the corporate climb isn't so fast or students find themselves without jobs in their intended fields, the maximum repayment rate may not cover the accruing interest.


In this case, the interest is added to the principal. It's certainly a motivator for success, but it's a detriment for those who find themselves happy at a medium level of income.

However, for those who find themselves behind their career earning goals, after twenty-five years any remaining debt on this type of loan is forgiven. It's not a gift, though. Forgiven debt will be reported as income, and taxes will need to be paid on it. This could start a whole new problem. The easy fix is to guarantee rising income and to consider the option carefully.

Graduated Repayment

Similar to the income contingency repayment option, a third repayment option for graduates is the graduated repayment. This also starts a graduate with low monthly payments and increases them over time, assuming that income has risen. However, instead of calculating a percentage of the income and creating payments at no more than 20% of it, these payments are automatically calculated and adjusted regardless of the student's job or potential. Real pitfalls could arise here as payments could exceed the amount able to be paid each month. The plus? Repayment can extend as long as thirty years.

Other Perks

Other perks that make the direct loan option stand out include prepayment and a non-locking option board. Students who chose the graduated repayment but see failure in the future can change to a standard repayment plan at any time. Prepayment also incurs no penalties with this type of loan. In a time of sudden job loss or a need to change careers before student loans are paid, the Federal Direct Loan Program may offer just the right options needed for today's students.

Comment Was this helpful? 1

It took me 7 years to pay off my student loan and I had only a small loan. When paying off your student loans, you need to create a budget where you allocate for making that payment every month. With my mortgage, I have found it much easier to allocate for the payment by subtracting 1/2 of it out of each paycheck, but then later writing the actual check. That way I am not left with virtually nothing after making the payment. This approach would work for student loans also.


In addition to making a budget and allocating for your monthly payment, set aside money in a savings account in the event you may get laid off, fired, have a medical problem, or some other emergency. This would enable you to continue making your student loan payments and meeting other financial obligations.

Ideally, this account should have enough funds for 6 months of expenses, but to make it a little less overwhelming, aim for 1 month of expenses and keep going from there. Figure out how much you can afford to put into savings each month and do automatically. If you can only do $10.00 a month, that's better than nothing.

Keep your discretionary spending under control when paying off a student loan. For example: if you eat a lot of snacks and drink coffee, soda, or tea, to minimize excess snack and drink purchases, consider buying snacks in bulk and then taking some with you to work or wherever you are going for the day.


Most people don't realize what $1.00 cup of coffee from the local convenience store adds up to over a year.

Just for reality's sake, say you work 20 days out of each month, or 240 days per year, and you get a cup of coffee every day before work. If you pay for a $1.00 cup of coffee each day, that's $240.00! Wow. Imagine what you could do with $240.00. That could be a car payment or rent for many people. And many people have several cups per day. Your work place may have free or cheap coffee, or you could bring a thermos with you.

Another way to curb your expenses would be to consider your entertainment budget. For example, if you have cable TV, Netflix, and you also go out to the movies once a week, can you cut out one of those? You could cut either the cable TV or Netflix and still be able to see plenty of movies and TV shows with the other option.

If you are a young adult, paying off your student loans is just the beginning of many financial responsibilities you will be asked to meet. Making payments on time every time will help to ensure that you maintain a good credit record, so that you can someday get other credit to buy a car or home if you want. It is a complicated process that can be made much easier with some simple planning and budgeting.

Don't worry. Being frugal is the new chic these days.

By Barbara Pope from KS

Comment Was this helpful? 2

July 1, 2005

If you have student loans which you cannot consolidate and they are at a high interest rate, compounding daily, then search for a credit card that will allow you to transfer balances at a low fixed interest rate for the life of the balance.

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Ask a QuestionHere are the questions asked by community members. Read on to see the answers provided by the ThriftyFun community or ask a new question.

January 31, 2012

What can happen to me if I cannot pay all my students loans off at one time? I did not find a job after college and I am looking everyday. I babysit and I am paying on two loans now and my mother is paying on one for me and my aunt is paying on one for me.

My dad passed away without any notice in 2006 and my mother and I just can't take all that has happened to us. We are trying to pay as much as we can on the loans, but I keep getting calls and they are demanding more that I just don't have. I am so scared that we will lose our home if I can't pay them all back at once. My question is: I am paying as much as I can and is there any help out there for people like me with the same problem?

By Kimberly


February 1, 20120 found this helpful

If you don't pay on your student loans, they can garnish up to 15% of your wages, take your income tax refunds and take a portion of some social security benefits, but they can NOT take your house, so please stop worrying about that. What you can do is apply for a forbearance. This is a link to a government site that will give you the information you need about forbearances:

Reply Was this helpful? Yes
February 1, 20120 found this helpful

I have not been able to pay mine, and they have never done anything to me but threaten. There have been times when I made a little more than needed to live on, have never been garnished, audited, or had my current SSD taken away. If you can find an attorney who will see you for 30 minutes for free, you can find out for real.

In 2001, 9 years after I graduated, I was offered a payment plan of just 275.00 (more than half my net income besides room and board), and at that rate, it would have taken me till I was 82 to pay it off.

But this sites will help.

One of the things I tried was to get the loan forgiven because I was disabled. They offered to cancel every penny...if I could get a doctor to say I was so severely disabled that I couldn't work at anything, which included picking up a phone. The irony was they called me about every other day which means I can pick up a phone. They set me up to fail knowing that it wouldn't work.

I wish you well. I also know that so many loans and the horror stories that go with them have made my grandson decide to not go to college.

Good luck.

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Answer this Question...

June 24, 2007

I have 2 companies claiming to have consolidated the same student loans. Both want payment starting in July. Upon contact both say to contact the other company and tell the they do not own the loan. How do I fix this?

Butch Lilly from Bowling Green, KY


By Debbie Richards (Guest Post)
June 24, 20070 found this helpful

Go to and type in Ombudsman in the search box. Contact the Ombudsman to help you resolve your student loan problem.

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By jean (Guest Post)
June 24, 20070 found this helpful

Talk with someone from your college financial aid office, They may be able to help.

Where did your loan(s) originally come from? Talk to someone there,

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Answer this Question...

May 16, 2018

It is important to pay off high interest loans as quickly as possible. In some cases, you may be able to consolidate student loans for a lower rate. This is a page about paying off high interest student loans.

Graduation hat on top of a pile of coins.

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August 8, 2017

Student loans can be very expensive and take a long time to pay off. It is not uncommon for these loans to go into default. This is a page about advice about a student loan in default.

A man holding a sign that says need money now.

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July 9, 2017

If you become disabled after accumulating student loans, and are now unable to repay them, you might be able to have them forgiven. This is a page about getting student loans forgiven if disabled.

A picture of a pencil eraser and a piece of paper that says Student Loans on it.

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April 14, 2016

This is a page about consolidating student loans. Sometimes consolidating loans can help lower payments making it easier to repay them.

Close up image of student loan application with pencil and calculator

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Budget & Finance Student LoansJune 29, 2011
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