Personal Finance

How not to drown in student loan debt

The college catch 22

How much did you pay for that college degree? Or are you still paying for it? More than 70 percent of students leave college with school debt, and the average loan balance is growing. The class of 2014 graduated with the most debt in history—an estimated $33,000 per student—and this year's graduating class is on track to top that.

If you're one of the millions of college graduates facing big loan payments, it may feel like the end is nowhere in sight. On top of paying down a five-figure debt, you're also being charged interest. (For the 2014-2015 school year, interest rates on federal student loans range from 4.7 and 7.2 percent.)

But whether you're 25 or 35, there are ways to save so you don't drown in your debt, said Mark Kantrowitz, senior vice president of, a network of education resource sites that was acquired by student loan provider College Loan Corporation in 2012.

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One very common point of confusion is how to handle your payments. It may be tempting to keep payments as low as possible, but that can cost you in the long run. When possible, experts like Kantrowitz recommend paying more now to save later. The faster you're able to pay off the loan, the less you'll end up paying in interest.

Try using student loan payoff calculators on websites like or to help you calculate how long it will take you to pay off your loan if you adjust your monthly payments. Whatever amount you're able to pay, set it up automatically through your bank so you don't miss a payment. If you do, you could get hit with penalty fees, or worse. If you fall behind by more than 90 days, it can affect your credit rating, your ability to borrow money and the interest you pay.

Even as you're paying down your student loan debt each month, don't forget to build up some emergency savings. Experts recommend a target of three to six months' worth of expenses. If you lose your job or get hit with an unexpected expense, not only do you want to make sure you can still cover your basic living expenses, but you also don't want to default on your loan.

If you do lose your job or encounter some financial hardships, call your loan service provider immediately to see if you can qualify for a deferment of payments (meaning you can postpone your monthly principal payments for a certain period of time without being penalized) or lower your monthly payments through the Income-Based Repayment program.

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Another option for lowering your monthly payments is to refinance your loan. If you have had time to build up your credit and still have a lot of debt to pay off, this might be a good option for you, Kantrowitz said. Most private lenders require proof of steady employment and a minimum credit score of 640. (You can check your credit score for free on or

If you qualify, you may be able to refinance through a peer-to-peer provider like SoFi or Common Bond or a bank like Citizens at interest rates as low as 1.9 percent. Just keep in mind that in converting a federal loan to a private one you may lose protections like federal income-based repayment and forgiveness programs and deferral options if you have trouble making payments.

What if you were able to get someone else to pay off your loan? No, I don't mean calling grandma. Some employers are willing to pay a lump sum payment toward the loan as part of the compensation package if you guarantee them you'll stay there a minimum number of years.

And if you work full-time in a qualifying public sector or nonprofit job, you might be eligible for full or partial student loan forgiveness. The Consumer Financial Protection Bureau, a watchdog agency, estimated last year that many of the estimated 25 percent of the U.S. workforce employed by a public service employer "may be eligible for existing student loan repayment benefits." Hey, it can't hurt to ask.