If you're one of the 43.6 million people with federal student loans, you know that building wealth while paying off debt isn’t easy.1
The challenges aren’t shared equally, either. On average, female, Black, and Latino borrowers saw their loan balances increase due to interest accrued on their student loans from 2009 to 2020. But, on average, male, white, and Asian borrowers saw their balances decrease during that time.2
Here’s expert advice on ways to lower your loan payments or decrease your balance, so you have more opportunity to build wealth.
Review your budget
Start by getting a clear picture of your income and expenditures. “By having a good idea of your inflows and your outflows, you are better able to include a large student loan payment and other savings priorities,” says Rafael Melendez, a Certified Financial Planner and certified student loan professional at Next Gen Financial Planning.
Once you've reviewed your budget, determine if you can lower any costs or discretionary spending, allowing you to put more money toward savings. If you can't right now, that's okay—don't worry. Focus on ensuring your loan repayment is part of your budget.
Compare student loan repayment plans
You can use different strategies to possibly lower your monthly federal student loan payments or how much you need to repay overall.
The standard federal student loan repayment plan has fixed payments and a 10-year repayment period. However, with an income-driven repayment plan, your monthly payment will depend on the plan, your taxable income, and your family size.4
To minimize your IDR payments, Melendez suggests decreasing your taxable income, if possible. "You may be able to do so via pre-tax investment savings (like a 401(k), traditional IRA, or health savings account)."
Quick tip: Upwise’s partner, Savi, can help you determine which payment plan is right for you. Use our student loan calculator to get started.
Consolidate or refinance your loans
If you have multiple federal loans, you may want to research a federal Direct Consolidation Loan, which allows you to combine multiple federal loans into one loan, and could lower your monthly payment but may carry consequences.5
“It may decrease the total monthly payment and extend the repayment term,” says Tim Melia, a financial planner with Embolden Financial Planning, LLC. “But pay attention as it might mean more interest paid during the life of the consolidated loan.” There may also be other downsides, so be sure to review the pros and cons.
You could also look into refinancing your federal student loans with a private student loan if you qualify for a lower interest rate and monthly payment. However, your loan will no longer be eligible for federal repayment or forgiveness programs.
See if you qualify for loan forgiveness
Your student loan forgiveness and cancellation options will depend on your loan type, repayment plan, employment, and loan amount. Review the Department of Education’s website to learn more about the various programs for Public Service Loan Forgiveness, which applies to teachers, government employees, those who work for nonprofits, and others.
“It's extremely important to ensure that you are in the right repayment plan for your situation,” says Melendez. He suggests minimizing your payments if you’re working toward forgiveness, as “doing so will allow you monthly flexibility to do other things like save for a house, pay down debt, or invest for your future.”
Strategically build your wealth
Once you’ve freed up money to add to your savings, think strategically about building long-term wealth.
“If an employer offers a retirement account with some sort of matching contribution, it's valuable to take full advantage of this match to grow retirement savings,” says Melia.
You can also look into other types of tax-advantaged accounts, such as IRAs and health savings accounts. And consider your investment timeline and risk tolerance when comparing different investment options.
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1. EducationData.org. “Student Loan Debt Statistics.” Accessed July 2023.
2. New York Times. “America’s Student Loans Were Never Going to Be Repaid.” Accessed July 2023.
3. EducationData.org. "Student Loan Debt by Race." Accessed July 2023.
4.Studentaid.gov. “Income-Driven Repayment Plans.” Accessed July 2023.
5. Studentaid.gov. “Consolidating Student Loans.” Accessed July 2023.