Should I Pay Off Debt or Invest in My IRA? strives to provide our users with helpful information while remaining unbiased and truthful. We hold our sponsors and partners to the highest industry standards. Once vetted, those sponsors may compensate us for clicks and transactions that occur from a link within this page.

Question: I’m trying to figure out what to do about paying off my student loans and investing in retirement. Should I pay off debt or invest in my IRA?

I just graduated college in May and began a full-time job in October making $36,000. I also do freelance work and receive anywhere from $500 to $1000 a month from that. I’m still living at home, and don’t have to pay rent or groceries, which really helps.

Currently, I have just over $18,800 in student loans at an average interest rate of 4.45 percent. I just started paying against them last month. And I have also opened a Roth IRA with just under $2,000 in there. My plan currently is to contribute $500 a month to my IRA. That way, I can max it out and pay $700 a month to my student loans.

My question is: Should I leave my IRA as it is and put that $500 a month toward my student loans in order to possibly get them done within a year?

The stock market has done nothing but fall since I opened my account. And I’ve read that could continue this year. But I’ve also read that it’s good to just keep contributing to an IRA when your debt isn’t high interest, in order to reap the rewards of compounding interest. I plan to move out of my parents’ house after a year. So, I think not having any debt would help with that a lot.

Would I be better off to stick with the course I’m on and knock out the debt in 2.5 years? Would not investing in my Roth IRA for a year or so make me miss out on potential compound interest, even if the market will likely go down stay the same? Or would it be too negligible to matter?

– Michael in Kentucky

Andrew Pentis answers…

Michael, as with most questions in personal finance, the answer to yours is: It depends. The right path forward hinges on whether we’re focusing on the “finance” part of personal finance or the “personal” part…

The financial part

Financially, it seems like investing could earn you more money in the long run than paying off your loans early. Your student debt has a relatively low-interest rate of 4.45 percent. So, it’s not costing you a huge amount in interest over time. Depending on your credit, you could even consider refinancing for lower rates.

Your return from the IRA can, of course, vary depending on what sort of assets (stocks, bonds, etc.) you invest in and how the market performs. As personal finance expert Dave Ramsey notes, it’s not unreasonable to see the S&P 500 benchmark stock index earn investors in those shares 12 percent or more per year. In such a scenario, the gains from investing could outpace the interest you’re paying on your student loans.

Since you’re starting young, your money will have time to grow. And you’ll be able to weather any temporary dips in the market. The effects of compound interest grow more powerful over time. Putting that extra $500 into your IRA could result in greater savings in the future than waiting until you’re debt-free.

You can use a student loan payoff versus invest calculator to see exactly how much money you could make by investing your extra $500 per month instead of throwing it at your student loans.

Of course, a return of 12 percent isn’t guaranteed, and no one can predict what will happen in the future. We can only base our predictions off past economic behavior to guess what can occur in years to come.

The personal part

The financial answer to your question seems to come out in favor of investing. However, the “personal” answer might lead you to a different conclusion. If you’d rather be debt-free and have a low tolerance for investment risk, you should pay the loans back first.

By making extra payments, you’ll get out of debt faster and save money on interest in the short term. Although your savings might not match what you could earn over the long run through investing, you’ll experience their effects much quicker.

By saying goodbye to your student loan payments years early, you’ll also have more of your monthly income to keep for yourself. This could be helpful if you’re looking to rent an apartment, buy a car or make another big purchase for yourself.

All in all, you’ll probably reap the rewards of paying off your student loans earlier than you would enjoy the fruits of investing. But if you’re playing the long game, putting extra money into your IRA will likely earn you the most money overall — you’ll just have to wait a few decades to enjoy it.

One more financial priority

I would add that paying off student loans and saving for retirement aren’t your only financial priorities. It’s also important to put money aside as an emergency fund. You’ll be prepared for an unexpected expense if you have some liquid savings.

Most experts recommend putting aside between three and six months’ worth of living expenses in your emergency fund as a financial cushion. Once you have your savings set aside, then you can use the leftover monthly income to invest or prepay your loans.

In the end, the decision to pay off debt early versus invest comes down to two main factors: what the numbers say, and what your personal feelings are about debt. Investing could earn you more overall, but that doesn’t mean paying off your student loans faster is the wrong choice.

If getting out from under the shadow of debt is your priority, feel free to throw that extra $500 at your student loans until they disappear.

Reflect on your personal short- and long-term goals, and let those goals help you strike the right balance between paying off student debt and investing in your IRA.

Andrew Pentis is a student loan expert and a writer for Student Loan Hero.

Rebecca Safier contributed to this report.

Does debt follow you to other countries?

Question: I just read a news article in CNBC about people moving to foreign countries to stop paying their student loans. I was thinking about it, and I know from the news article I would be hit with garnishments of my salaries and Social Security. And I know I can’t work for a USA company because they would take money from my paycheck. But I have a question I didn’t see answered: 

What if I get adopted overseas, change my name, and then apply as an immigrant? Would they catch me?

This isn’t a hypothetical. I’m 27 but my mother who raised me died two years ago, with no relatives in this country. I have distant but friendly relatives in China. I also have $42,000 of student loans. If I go to China, get adopted by my well-to-do relatives, then return to this country as a Chinese national to pursue my doctorate, how would this country know who I was and what I owe?

– Kim in California

Andrew Pentis answers…

Fleeing the country to avoid student loan repayment rarely works out well for borrowers, and it would probably only succeed if they live the rest of their lives outside the United States. It’s not something I recommend.

What about fleeing and then returning under a different identity? With all due respect, Kim, that is a hypothetical, and a juicy one at that.

As one lawyer specializing in student loans, Simon Goldenberg, told me: “No one knows whether her lenders will eventually catch her.”

From a legal standpoint, Goldenberg says changing your name and citizenship status won’t affect your liabilities. You would still owe your creditors what you borrowed — plus interest.

We won’t pretend to know whether the Department of Education or your private lenders have the wherewithal (or willingness) to track you down. We also won’t get into the ethics of knowingly not repaying what you borrowed. That’s fodder for a different type of advice column.

Instead, let’s review how to deal with your debt here at home…

For one, if you have federal loans, consider switching to an income-driven repayment plan to make your monthly payments as affordable as possible. Grouping your debt via a debt consolidation loan could be your first step.

If you have federal and private loans, you could attempt to refinance with a private lender. You’ll need a strong credit score (among other factors) to unlock refinancing companies’ lowest interest rates. Also, you’d lose the perks of federal loans, such as the ability to alter your repayment plan.

Finally, you could be eligible for student loan repayment assistance for your undergraduate loans or future doctorate costs. After all, it’s better to receive a helping hand than to have to look over your shoulder.

Andrew Pentis is a personal finance expert at Student Loan Hero.

See a similar question below:

Question: I studied in the United States for many years. But when I got my degree, I moved to another country. I currently have a federal loan around $120,000 that I cannot repay. Soon it will go into default. However, I am NOT an American citizen, and I live outside the United States. What could the consequences be, if any? Do I have to pay back the loan anyway? Will my credit score be affected? Can that hurt me in Mexico?

–John in Naucalpan, Mexico

Howard Dvorkin answers

Moving abroad and leaving debt behind is a dangerous game. Like many games of chance, it’s hard to predict if you’ll win or lose.

Let’s break it down by first answering what I think you’re asking: “Can debt follow you to another country?” The answer is no, the United States government isn’t going to send a debt collector to your door in Mexico.

However, if you ever want to live or work in the country again, you’ll face the same penalties as any U.S. citizen who stops paying their student loans for 270 days (after which it goes into default). One of those penalties is serious: The government will seize a chunk of your paycheck.

It’s called student loan garnishment, and it works like this…

That means, should you ever land a U.S. job, 15 percent of each paycheck can be taken and applied to your student loan debt. The government can also garnish Social Security checks and disability benefits if you’re receiving them. You probably aren’t, but I mention both to show just how serious the federal government is about the student loans it guarantees.

You might think, “OK, I’m safe as long as I don’t cross the border,” but that might not be true. If you work for a company based in the United States, your paychecks can still be garnished. You’re in Mexico, John, which is a major U.S. trading partner. It’s not unlikely you might find good work with a U.S. company – and suffer the consequences.

As you can now see, just because you left the country, you didn’t leave behind your debts. They survive and even grow. In this way, U.S. debt follows you if you depend on an American company for pay.

As for your credit score, it operates much like your debts. Because you’re no longer paying what you owe, it will plummet. The only good news: Lenders in Mexico don’t use U.S. credit scores.

Another option

To keep your options open and your payments low, consider switching to an income-based repayment plan to make your monthly payments as affordable as possible. You could also group your debt with a debt consolidation loan.

Student loan debt is such a massive problem in this country, the federal government offers options to make payments affordable. These are legitimate programs for greedy reasons: The government eventually wants its money back, but with more than $1.2 in student loan debt outstanding – more than all the credit card debt in the nation – it doesn’t want more defaults. It certainly doesn’t want its borrowers fleeing the country.

Buried in student loan debt? Don’t flee the country. Contact, we have the solutions to fit both federal and private student loan debt relief.

Get Started

Can I Pay Off My Student Loans By Betting On Sports?

Question: Now that the Supreme Court says gambling on sports is legal, do I have to pay taxes on my winnings? I’m really good at predicting sports but never gambled on it because I’m a school teacher, and I’d get fired if I got caught. But now that it’s legal, I plan to pay down my student loans by making money on sports book.

— Jim in North Carolina

Jacob Dayan answers…

Before I answer your question as a tax expert, let me quote some of the other experts here at when I told them you planned to pay down your student loans by gambling on sports.

“It shouldn’t need to be said, but gambling isn’t the same thing as saving or even investing,” warns chairman Howard Dvorkin. “By definition, who wants to gamble with their finances? This is a terrible idea. I don’t know how else to say it.”

Adds Steve Rhode: “Say what? That’s crazy!”

We’ll get back to your student loans in a moment, Jim, but let’s talk about taxes and gambling winnings.

[Community Tax co-founder Jacob Dayan]

Hi, I’m Jacob Dayan, CEO and co-founder of Community Tax.

First, you need to know this, gambling on sports is not yet legal everywhere in this country.  The Supreme Court didn’t just wave a magic wand and declare bet on the NBA and NFL in all 50 states; it simply struck down a law that bans sports betting. Now, it’s up to those states if they want to allow it.

That can take months or even years for them to decide. One thing that’s for sure, though, the IRS is already tough when it comes to gambling that’s legal right now. We’re talking casinos horse racing, and the like.

So yes, if and when the states make sports betting legal, you’ll need to document everything that you win and lose. Things can get complicated so shorten your odds of messing up by consulting a tax pro. You can learn by visiting

It’s not a done deal yet

First, let’s clear up some confusion: gambling on sports is not yet legal all over the country.

Jim is referring to the Supreme Court ruling in Murphy v. National Collegiate Athletic Association. In May, the Supreme Court decided that the Professional and Amateur Sports Protection Act, which stopped new states from legalizing sports betting in 1992, violated the 10th Amendment of the Constitution.

Don’t remember that one? It means that unless there’s a specific power given to the federal government, that power resides with the people or the states. This is essentially the “states’ rights amendment,” and the Supreme Court ruled that the Professional and Amateur Sports Protection Act granted authority to the federal government power when it really belonged with the state — because the act ordered states to take specific actions to ban sports gambling. Only four states Nevada, Oregon, Delaware, and Montana were grandfathered in under the Professional and Amateur Sports Protection Act because sports betting was already legal.

The Court’s ruling does not, in itself, make sports betting legal. However, many states are looking into how to regulate sports betting so that it may become legal. Gambling revenues in taxes alone could be enough incentive for the state to make at least some forms of sports betting legal before the end of the year.

Then again, the Court’s ruling does not stop Congress from passing legislation to directly ban sports gambling. So your student loan repayment plan needs to wait at least a little while.

Don’t gamble with the IRS

Even now, the IRS takes reporting legal gambling winnings and losses very seriously. Auditing gambling losses is one of their favorite past times.

Let’s say that sports betting spreads and more Americans participate. What are their income tax obligations on any gambling winnings? The first step to staying fully compliant with IRS tax law is to report all income received. The IRS list six key points when it comes to reporting gambling earnings…

  1. Gambling winnings include lotteries, raffles, horse racing, casinos, or any cash or fair market value of physical prizes you win such as cars or trips.
  2. Look out for forms W2-G from the source of your winnings. You’ll receive a copy, but so will the IRS directly from the payer. Therefore, the IRS knows when something is missing from your returns!
  3. You must report all gambling winnings on a tax return even if you don’t receive a W2-G.
  4. Gambling income is reported as “Other Income” on your tax return.
  5. You may deduct your gambling losses up to the number of your total gambling winnings as an itemized deduction on a Schedule A. You may not claim a loss on gambling income.
  6. Accurate records are a must. The IRS requires you keep detailed records in the form of a diary of all of your winnings and your losses. Receipts, tickets and other documentation you may have should be saved as well.

While the Court’s ruling may not have legalized sports betting nationwide, it has certainly bulldozed a path. If you’re even a casual gambler, you might want to consult a tax professional to help you maintain the correct records in case you’re audited.

Finally, about those student loans. Jim, if you’re a public school teacher, you might qualify for student loan forgiveness. You should check it out, because it’s a federal program, and it’s more reliable than betting against the spread on the NFL or NBA.

Jacob Dayan is co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with all of their tax resolution, tax preparation, bookkeeping and accounting needs.

Should I Settle My Student Loan Debt For 60 Percent Or Fight For Half?

Question: : I have $88,000 in private student loan debt. I’m six months behind on the monthly payment of $865. So I have offered a settlement of 50 percent ($44,000) of what I owe. They have counter-offered at 61 percent, which is $53,770. 

I have paid more than $18,000 over the course of the last four years in a reduced-interest-rate program, after exhausting all deferments and forbearances. So now I have two questions…

First, should I take the 61 percent as the final offer? I have read 50 percent is very common in similar cases as mine.

Second, if I settle will I owe in taxes next year? And if so how much? I realize my credit will be hit pretty hard. I can endure that, but how much I owe in taxes could make a huge difference on whether or not this is a smart move.

— Aaron in Missouri

Steve Rhode answers…

Debt settlement is nothing more than two parties coming to a mutually agreeable arrangement to resolve a debt owed. Here’s a quick explanation of what it involves…

A lot of factors go into trying to determine if a settlement is a good offer. Some of those factors can be:

  • Who’s the lender or servicer?
  • What’s their track record on taking legal action?
  • Do they offer better settlements after filing suit?
  • What’s their historical settlement target?

Many of these answers can only be known by a professional who has experience dealing with the lender or servicer you have. This is why hiring a debt coach with knowledge and skills in this area can be invaluable.

Hiring someone to help you will cost you, so at some point, a lower actual settlement plus fee will equal an amount close to what you’ve been offered.

But let’s look at the facts. There doesn’t appear to be any dispute you owe the debt. So the current balance of the debt is determined by the amount borrowed and the terms agreed to in the original lending document.

Those terms probably said interest would continue to build even during periods where you were not making a payment. It probably says penalties can be added if you default and the lender has the right to take legal action to recover the money due.

This could include suing you and going for a judgment, garnishment, asset seizure, etc. Letting the situation continue if that might be your lender’s typical approach has some risk costs as well.

Here’s the most important thing to know…

No lender has to agree to any settlement.

So any agreement that’s different than what you currently owe is a benefit to you. Putting this behind you has some value to you as well. All of the above factors need to be weighed in determining what is a fair settlement amount for you.

The tax question

If more than $600 is forgiven in the settlement, the lender is required by the IRS to report the debt. Your tax exposure will be the amount of debt the lender agrees to write off.

However, if your liabilities exceed your assets at the time of the settlement, you may not have any tax liability. See IRS Form 982 to understand why you may not have any tax liability.

If you’re not insolvent and will owe taxes, then the debt forgiveness income will be at your normal tax rate — just like you earned the money.

Steve Rhode is known as the Get Out of Debt Guy and has appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice.


Do Children Of First Responders Get Loan Forgiveness?

Question: Do dependents of first responders also qualify for the loan forgiveness? Do all of the loans need to be parent-plus loans to qualify?

— Matt in Pennsylvania

[ founder Howard Dvorkin] Loan forgiveness is both amazing and confusing. If you work in certain professions, you can get your student loan balances wiped clean, but there’s a catch. Actually, there are several.

First, you need to work as a first responder, teacher, or be in the military.

Why? Because these money-saving programs were created by the federal government, and they want to reward those who sacrifice and care for their country.

If you qualify for these programs, you still have to make student loan payments for a 10 years, but you do that inside another money-saving student loan program.

The government has several of these programs – all slightly different even though they have similar-sounding names. We’re talking about names like “income-based payment program” and “income-contingent repayment program.”

Knowing what program to use and which ones you qualify for can be very confusing and I don’t recommend that you try to navigate these programs on your own.

Just like you’d hire a CPA to do your taxes, you can consult a student loan expert.

Howard Dvorkin answers…

Loan forgiveness is both amazing and confusing. So let’s start with the short answer and work backward from there: No, loan forgiveness is only for first responders, not their spouses, children, or other relations.

That means you can’t use this benefit for your dependents, regardless of the type of loan you secure. Why? Because loan forgiveness for first responders is about education, not just debt.

In other words, the federal government has extended this benefit to first responders so they can earn a degree. The loan forgiveness program simply helps them shed their student loan debt in that pursuit.

Actually, I shouldn’t use the word “simply” when it comes to loan forgiveness. If you read the’s Student Loan Forgiveness Program report, you’ll see just how involved the process is. Perhaps I’m biased, but I believe our report is written more clearly than anything else you’ll find online.

The problem is this: Student loan forgiveness works in tandem with other existing student loan programs designed to reduce your payments. You must be enrolled in one of those before you can take advantage of actual loan forgiveness. They have confusing and similar-sounding names like income-based repayment and income-contingent repayment.

Then you need to make 120 “qualified payments” under the program you choose. After 10 years, you can have the rest of your balance wiped off your books. To make matters more confusing, every time you change jobs in those 10 years, you need to “recertify.”

It gets even more confusing, because President Trump has proposed getting rid of this program or changing it — or leaving it alone. It’s difficult to tell, because no actual legislation has been released.

Finally, you mention parent PLUS loans. These are a special kind of student loan. They allow parents to borrow at favorable rates so they can pay for their dependents’ undergraduate education. While those loans can’t be forgiven, they can still take advantage of other federal programs that can ease their burden.

Then again, it’s very confusing. Here’s how the federal government’s own student aid website describes that…

Although PLUS loans made to parents can’t be repaid under any of the income-driven repayment plans (including the ICR Plan), parent borrowers may consolidate their Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan and then repay the new consolidation loan under the ICR Plan (though not under any other income-driven plan).

Got that? This is why I suggest you consult an expert before doing anything — or nothing. can give you access to such an expert for a free consultation. Just call us at 1-800-810-0989.

Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

How to Get Out of Student Loan Debt

Finding the best way to get rid of student loan debt for your unique financial situation.

Learn how to get out of student loan debt step by stepStudent loans are now the second largest source of debt in the U.S. after mortgages. They’re also an infinite source of stress for the borrowers trying to eliminate them. The good news is that there are solutions that can help borrowers pay off school loans in more effective ways. In fact, a study by the Government Accountability Office (GAO) found that about half of federal student loan borrowers overpay. You just need to figure out how to get out of student loan debt effectively, given your budget and credit situation.

The solutions that we detail below explain how to get rid of student loan debt in a more effective way. There are solutions that help lower monthly payments to fit your budget and allow you to qualify for federal loan forgiveness. On the other end of the spectrum, there are also solutions accelerate repayment so you can get out of debt faster and minimize total interest charges.

Quickstart Menu for Getting Rid of Student Loan Debt

General Information About How to Get Out of Student Loan Debt

What factors determine eligibility for different solutions?

The options you choose to get out of debt start with what you want to accomplish:

  1. Do you need lower monthly payments that work better for your budget?
  2. Do you want to pay off your loans quickly, which also helps reduce the total interest charges applied to your debt?

Those are basically the two options you have. Lower payments usually mean you extend the term (length) of your loans. You stay in debt longer, but your payments are more affordable month to month. By contrast, if you go for faster payoff, the monthly payments will be higher. However, since there are fewer months to apply interest charges, you reduce your total cost.

Beyond your elimination goals, there are a few other factors that determine which solutions you choose:

  1. The types of loans you hold – federal or private
  2. The status for your loans (i.e. are they in default)
  3. Personal income level and budget
  4. Credit score
  5. Your employment

Private loans and public federal loans can add up quickly to create problems with student loan debt for borrowersIt’s important to note that any federal repayment solutions only apply to federal loans; you can’t use a federal repayment plan for your private debt. You can use private lending solutions for federal loans. However, this is usually not recommended since it converts those loans into private debt.

Employment only matters when it comes to federal student loan forgiveness programs. In most cases, you must be employed in some type of public service profession to qualify.

The best student loan repayment plan if you have limited cash

If you have federal loans and a limited budget, then the best solutions are hardship-based repayment plans. These plans set the monthly payments as a percentage of your Adjusted Gross Income (AGI). They also take your family size into account. So, the lower your income and more dependents you have, the less you have to pay.

The most affordable plan is Pay as You Earn (PayE). For the average borrower, the monthly payments usually equal to about 10% of your income. However, if you live below the federal poverty line for your state, your payments can drop to zero. You even get credited for making “qualified payments” during your hardship period. The payments only increase one your situation improves. So, if you face extreme hardship, Pay as You Earn is the way to go.

There are also two other programs that work on a hardship-based system:

  1. Income-based repayment (IBR) typically sets your monthly payments at around 15% of your AGI.
  2. Income-contingent repayment (ICR) usually offers monthly payments at 20% of your AGI.

Also, keep in mind that you must enroll in one of these hardship-based programs if you want to qualify for federal loan forgiveness.

How to pay off student loans fast and minimize total costs

There are two federal repayment plans that allow you to pay off your loans faster. They are the standard repayment plan and the graduated repayment plan. Standard repayment is what you get enrolled in automatically if you don’t choose another plan. It breaks repayment into fixed payments based on your total debt. The term is 10 years.

Graduated repayment starts with slightly lower payments than standard. But they increase by 7% every two years. So, at the end of your repayment period, the payments can be higher than standard. This option starts low to match entry level salaries, then grows as you advance in your career.

In both cases, this minimizes interest charges as compared to hardship-based programs. Those options usually have terms of 20-30 years. So, by paying off your loans faster, there are less months to apply interest charges. However, these repayment plans don’t help you qualify for lower interest rates. The rate will always be a weighted average of your original loans.

The only way to lower the interest rates applied to student loans would be to use private consolidation. This would allow you to qualify for a lower rate based on your credit score. However, keep in mind that federal loans have relatively low rates compared to private lending. So, only borrowers with excellent credit would even have a chance of beating federal rates.

If you have excellent credit, then you may decide to consolidate all your federal and private loans together. In this case, aim for a shorter term that offers monthly payments you can afford. This will allow you to get out of debt faster while minimizing interest charges.

Federal student loan consolidation vs. refinancing vs. repayment

Student loans don’t exactly function like your other debts. In turn, relief options like consolidation and refinancing function a little differently, too.

For most debts, you can refinance your loans to achieve a lower interest rate. The new rate that you qualify to receive depends on your credit score. So, if you have better credit now than when you took out the loan, you get a lower rate. But in the world of student debt, that logic only applies to private loans.

For federal loans, rates are currently set based on the 10-Year Treasury Note Index. New rates are set on June 1 of every year. So, whether you have good credit or bad credit or no credit, everyone gets the same rate. If you use a federal consolidation loan or federal repayment plan, your servicer always sets the rate by taking a weighted average of your original loans.

Consolidation also works differently. When you consolidate credit card debt, one of the goals is usually to reduce or eliminate interest charges. But that doesn’t apply here. Instead, Federal Direct Consolidation Loans do three things:

  1. A loan simplifies repayment by combining all your loans into a single monthly payment
  2. Consolidation allows you combine different types of federal loans, so more of your debts can be eligible for federal repayment plans.
  3. If you have loans in default, you can use consolidation to bring the debt current.

Using a Federal Direct Consolidation Loan is often the first step in setting up a repayment plan.

The risks of using private student loan consolidation for federal loans

Be careful if you want to combine private and federal loans with private student loan consolidation

Federal relief programs only apply to federal loans. You can’t convert private student loan debt into federal. But the same is not true in reverse. There’s nothing that stops you from paying off federal loans with personal loan. Just like you can take out a personal loan to pay off your credit cards through consolidation, you can do the same thing with student loans.

However, just because you can do something, it doesn’t mean you should. Converting your federal loans into private debt should only be done with extreme caution. It means you are no longer eligible for federal repayment plans or Direct Consolidation. More importantly, you give up your eligibility for federal student loan forgiveness programs.

That last part only matters if you work in a qualified public service profession. That makes this conversion especially risky for teachers, nurses, firefighters and other first responders. Public Service Loan Forgiveness can be extremely beneficial for cutting the total cost of repayment. So, anyone who may qualify for PSLF should probably avoid converting their federal loans.

For everyone else, it’s a matter of risk if your financial situation changes. If you convert your debt into a shorter-term, high monthly payment consolidation loan that may work for your budget now. But what if you lose your job or have a major medical issue that knocks you out of work? In this case, you wouldn’t be able to use a hardship-based plan. In fact, you would probably not even be able to use deferment or forbearance.

Do I qualify for student loan forgiveness?

The main type of forgiveness for school loans comes through the Public Service Loan Forgiveness Program. This applies to borrowers who work in a public service profession, such as nursing, teaching or as a first responder.

This is the lengthy process that public servants must follow in order to qualify:

  1. Enroll in a hardship-based federal repayment plan.
  2. Certify their employment as a qualified public service profession.
  3. Make 10 years of qualified payments (120) on their repayment plan.
    1. This requires you to re-certify your income and family size each year.
    2. It also advised (although not required) that you recertify your employment each year or anytime you change jobs.
  4. After 120 payments, you can apply for loan forgiveness. This erases your remaining balances without penalties.

You cannot switch to a private sector job during the 10-year repayment period. After your loans are forgiven, you can change jobs without worrying about this.

There are other forms of loan forgiveness that apply specifically to military Service Members and Veterans. There are also forgiveness options if you work in the Peace Corps, AmeriCorps or as a volunteer through the VISTA program. These options only provide partial loan forgiveness up to a certain dollar amount, unlike PSLF that currently has no cap.

Does bankruptcy clear student loans?

By and large, you cannot discharge student loans through filing for bankruptcy. Federal regulators put rules in place to make it extremely difficult. This applies not only to federal student loan debt, but also private. These rules make student loans one of the few debts that you can’t just wipe away by declaring bankruptcy.

There are rare cases where a borrower can prove extreme undue hardship. You essentially must show that the burden of student loans would be so great that it would push you back into financial distress, even once all your other debts are discharged. That’s not an easy task. So, for the most part, you work under the assumption that bankruptcy can’t clear student loan debt.

Do you need professional student loan debt help?

Can you navigate student loan debt relief options on your own?

You can enroll in any federal relief options, including consolidation, repayment plans and loan forgiveness, on your own. Just sign up or change plans through – the same place you check on the status of your loans. In addition, you can change federal plans as often as you need to, based on your eligibility.

That being said, there can be good reason to enlist the help of professionals. Filing documents, particularly when it comes to hardship certification can be complex – much like you’d expect from government forms. There’s also ways to strategically divide your debt up to ensure repayment fits your needs and budget. Coming up with the right strategy often involves knowing all the tricks you need to customize a solution.

So, much like you may hire a tax professional to help you file your income taxes correctly, you may choose to do the same thing for you student loans.

Spectrum of Student Loan Debt Solutions

SolutionWorks for:Benefit:Use with:
Federal Direct Consolidation LoanFederal student loan debt, not including PLUS loans for parents; must have 1 Direct Loan.
  • One monthly payment
  • Brings defaulted debt current
  • Makes more debt eligible for federal repayment
Federal repayment plans, such as an IBR or PayE
Standard RepaymentFederal student loan debt, not including PLUS loans for parents
  • Fastest way to repay federal loans
  • Keeps total costs low by minimizing interest charges
Federal Direct Consolidation Loan
Graduated RepaymentFederal student loan debt, not including PLUS loans for parents
  • 2nd fastest way to repay
  • Starts low for entry level salary, then increases as you advance your career
Federal Direct Consolidation Loan
Income Based RepaymentFederal student loan debt, not including PLUS loans for parents
  • Matches payments to income and family size
  • Payments typically reduced to 15% of your income
  • Makes you eligible for forgiveness
  • Federal Direct Consolidation Loan
  • Public Service Loan Forgiveness
Income Contingent RepaymentFederal student loan debt, not including PLUS loans for parents
  • Matches payments to income and family size
  • Payments typically reduced to 20% of your income
  • Makes you eligible for forgiveness
  • Federal Direct Consolidation Loan
  • Public Service Loan Forgiveness
Pay as You EarnFederal student loan debt, not including PLUS loans for parents.
Note: Original PayE only applies to “new” borrowers (loans after 2011). Revised program (REPayE) applies to all borrowers.
  • Matches payments to income and family size
  • Payments typically reduced to 10% of your income
  • Makes you eligible for forgiveness
  • Federal Direct Consolidation Loan
  • Public Service Loan Forgiveness
Public Service Loan ForgivenessPeople in public service professions who enroll in  hardship-based repaymentForgives remaining balances without penalties after 120 payments
  • Income based repayment
  • Income contingent repayment
  • Pay as You Earn
Private Consolidation LoanAll federal and private student loan debt
  • Provides one consolidated payment
  • May reduce interest charges
  • Doesn’t require annual certification
Private Student Loan SettlementPrivate loans only.
Note: Settlement is rare, since even private loans typically can’t be discharged by bankruptcy
Allows you to get out of debt for less than the full amount owed

What Happens If I Can’t Afford My Student Loan Payments?

Question: I have a rather severe situation. I owe $61,000 in private student loans and another $30,000 in federal loans. I also have a child support obligation to the tune of $600 a month for my children who I haven’t seen in years.

I only make $14.25 an hour. After all is said and done, I only bring home $850 a month net.

My problem is that the private student loan company wants their money, about $670 a month. I’ve tried speaking to them, and the best they offer is $100 a month for 6 months at most. I’ve used up all the forbearance allowed.

I barely scrape buy as it is. A second job isn’t really an option, as my first job has such long and weird hours. What in the world can I do? I have no savings, no emergency fund, and at this time, little to no hope.   Help me?

— Owen in Colorado

Steve Rhode answers…

These are certainly trying times for you. The stress, pressure, and emotional toll must be immense. You’re probably feeling trapped, pulled, and hopeless. Those are all normal feelings in this type of situation.

On the federal student loans, you absolutely need to consider one of the income-driven repayment plans. That will probably result in a $0 per month or a very low payment, yet keep you out of default. These income-driven repayment plans are not perfect but they are the best option in your situation. You might want to read this explanation to understand the pitfalls.

On the private loans, you have a few options. You can either make the contractual payment, (which you clearly can’t afford), you can send something (but that would be pointless), or you can strategically default.

Compare student loan refinance options to find the right solution to get out of debt faster.

Get Started

Defaulting on your private loans has significant consequences. It will increase your balances. You may be threatened with — or actually experience — legal action. But at its core, this is just a math problem, and unless the private student loan lenders are willing to work with you, then the math makes no sense.

You will eventually default, so why not approach this with a plan and prepare for it? That would be the logically smart thing to do.

You should read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan to better understand why defaulting with a plan can make sense.

With the right people advising you, defaulting can often result in good conclusions — like settling the debt for less than you owe, reduced repayment plans, nearly zero-percent interest, and the elimination of collection pressure.

Of course, there’s a chance your private student loans could be eligible for discharge under bankruptcy. Read These Private Student Loans Can Be Easily Discharged in Bankruptcy.

You’re currently feeling hopeless, but I see your situation as hopeful. A solution can be planned and executed. If you want to get someone to help you see through the fog and work with you to develop a plan of action to tackle this situation, I’d strongly suggest contacting debt coach Damon Day. He’s uniquely brilliant and skilled at dealing with the issues. We discuss such situations on a daily basis.

You can also see my list of smart student loan attorneys who may be able to assist as well. A good expert will help you develop a plan. Don’t give up, Owen, brighter days are ahead.

Have a debt question?

Email your question to and Howard Dvorkin or one of his fellow experts will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

How to Pay Off Student Loan Debt Fast

A step-by-step guide to paying off student loan debt fast.

Build a plan to pay off student loans fast

Student loan debt can cripple your budget and reduce your ability to achieve major life goals. The average graduate leaves school with over $35,000 in debt now. So, how do you pay off student loan debt fast so you can move forward with your life?

Step 1: Evaluate your debts

The first step is to understand how much debt you have and what types of loans you hold. It may sound crazy, but many people leave school with no idea of how much they owe. This is crucial information as you develop a plan to pay off student loan debt quickly.

  1. You can find your federal student loan total through
  2. For private student loans, you need to check with each loan servicer OR you can check your credit report to see all the loans in your name.

It’s important to note which debts are private and federal, because this determines which repayment plans you can use. If you just graduated, also note when the repayment period on each loan starts; most federal loans have a six-month grace period.

Step 2: Evaluate your budget

The path you use to pay off student loan debt largely depends on how much income you have on-hand for elimination. If you have disposable income to burn, you can pay off student loans debt fast without stressing your budget. On the other hand, if money is tight, you may need a plan that focuses on lower monthly payments.

Income security matters, too; that’s how confident are you that your income will at least remain steady. For example, you may choose to consolidate all your loans together (federal and private) with a private consolidation loan. However, this would make you ineligible for federal relief programs if you run into trouble down the road.

Step 3: Get familiar with different repayment plans

There are different repayment plans for different types of student loan debt and various needs:

  1. Private consolidation loan: This is where you take out a new loan to pay off student loans. You qualify based on your credit and can use the funds to pay off federal and private student loan debt.
  2. Federal standard repayment plan: This is the repayment plan your federal loans automatically fall into if you don’t choose another program. It pays off student loans in fixed payments over 10 years.
  3. Federal graduated repayment plan: This program is also 10 years; payments start lower and increase gradually over time. The idea is to match payments to your income as you advance in your career.
  4. Federal income-based repayment: This is hardship-based program that matches the monthly payments to your income and family size. The payments usually come out to roughly 15% of your take-home income.
  5. Federal income-contingent repayment: This is another hardship program with slightly higher payments. In general, you end up paying roughly 20% of your income.
  6. Federal Pay As You Earn plan: This is a specialized hardship plan for loans taken out after 2011. It can reduce your payments to 10% of your income or less, providing the lowest payments possible.

All the hardship based plans offered through the federal government have terms over 20 years. However, if you qualify for Public Service Loan Forgiveness, the government forgives your remaining balances after 120 payments (10 years).

Step 4: Decide if/how to divide your loans between repayment plans

This is where paying off student loans can get tricky. There is no requirement that all federal student loans must go into the same repayment plan. In fact, you can even do strategic things like having two standard repayment plans running at the same time. Since standard monthly payments depend on the total debt included, splitting your debt up can adjust how much you pay each month.

In general, you can’t enroll in a hardship plan and another hardship plan or a standard plan at the same time. However, you can pay off federal student loans with part of a private consolidation loan, then include the rest in a hardship-based plan. That assumes that you have an income level low enough to count under the federal definition of financial hardship.

Also, note that to use federal loan forgiveness, you must enroll the loans you want forgiven into a hardship-based plan. Forgiveness only applies to loans you include in that program. You also need to certify that you work in a qualified public service position during the 10 years of repayment.

Your ultimate goal is to achieve highest total monthly payment you can comfortably afford on your budget. This will pay off student loan debt as quickly as possible and minimize total interest charges. If you can’t figure this out on your own or you’re unsure, get professional help.

A Final Note on How to Pay Off Student Loan Debt Fast

In general, private student loan consolidation is the fastest way to pay off student loan debt. At minimum, federal repayment plans take 10 years. But with a private consolidation loan, you can set a term that works for your budget and goals. So, if you want to pay off student loan debt in five years, you set a 60-payment term; as long as you can afford the payments, this will get you out of debt in half the time.

It’s worth noting that you can usually make larger payments or extra payments on student loans without early repayment penalties. This means you can direct extra cash, such as a tax refund, to your student debt. Extra payments and larger payments mean you pay off principal faster, so you can be out of debt that much sooner. Making the largest payments possible will pay off student loan debt as fast as possible.

Does The Government REALLY Want To Help Me Pay Off My Student Loans?

Question: I graduated from college last December and now have to start paying back my student loans. I got $29,000 in loans, but there’s no way I can make the monthly payments on my salary. (I just got a full-time job in May.)

I’ve heard there are programs that lower your payments, but I also hear there are a lot of scams out there. When I search for “how to reduce student loans,” I get lots of companies trying to sell me stuff, but very little objective information.

So are there really government programs? And if there are, why doesn’t the government ever mention it?

— Andres in California

Howard Dvorkin CPA answers…

Yes, the government wants to help you pay off your student loans. No, the government doesn’t tell you much about these programs. Using your search terms, it took until the middle of the second page of search results to find this explanation from the U.S. Department of Education.

In fact, the federal government does a downright awful job publicizing these programs to the very people who need them most — and that’s not just my opinion. It’s also the government’s.

Back in August 2015, the U.S. Government Accountability Office released a damning report on student loans. It’s title: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options.

Sure, the report says, “these plans provide eligible borrowers with lower payments based on income and set timelines for the forgiveness of any remaining loan balances.” However, “many eligible borrowers do not participate.” Why? Simple. They don’t know about them.

“As a result, borrowers who could benefit from the plans may miss the chance to lower their payments and reduce the risk of defaulting on their loans,” the report concludes.

The GAO even suggests the federal government offer “streamlined processes for learning about” these programs, with “enhanced communications targeted to borrowers most likely to benefit from these plans.”

Let’s take a look at how it works now. That search result I mentioned earlier is a page from the federal government’s Federal Student Aid website. Here’s exactly what it says…

An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. We offer four income-driven repayment plans:

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan)
  • Pay As You Earn Repayment Plan (PAYE Plan)
  • Income-Based Repayment Plan (IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)

If you’d like to repay your federal student loans under an income-driven plan, you need to fill out an application.

Here’s the silly part: That list of programs don’t contain any links or definitions. Do you know the difference between an income-based and income-contingent repayment plan? Yet the government wants you to fill out an application before you know what you’re applying for.

If you want some objective definitions, Andres, check out’s report on Federal Loan Repayment Plans. In plain English, you’ll read up on six distinct ways the government tries to help you manage your student loan debt.

Then I’d call a professional. Much like accountants can help you file income taxes, those Internet search results are from companies that want you to pay them a small fee to help you save big bucks.

Once you know the basics, you can navigate that call much wiser. For starters, ask lots of questions and don’t sign up for anything right away. If you get hit with a hard sell, call someone else. If you’re asked to pay up front, hang up.

Of course, you can call and speak to an expert, but if it’s not us, call someone — but only after reading up on the topic. I’m always amazed at how people spend hours researching cars before they buy one, but seldom even minutes researching how to pay off their student loans. What’s damning about that in many cases is this: If you do it right, your research will save more on your student loans than it will on a new car.

Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

How Do I Stop Being a Co-Signer On A Student Loan?

Question: How do I end being a co-signer on a student loan?

— Sonia in California

Howard Dvorkin CPA answers…

As I’ve often said, the shorter the question I’m asked, the longer the reply I need to give. In this case, the answer is longer because I don’t know the details of your situation.

First, I’m assuming this is a private student loan, as opposed to a federal one. There’s really only one federal loan you can co-sign for, called Direct Plus. Since that’s not a common loan, let’s focus on private student loans.

What’s the difference? Private student loans are those you get from a bank, credit union, or other non-governmental lender. Because these are private businesses, they can set any interest rate, loan limit, and other terms they choose.

Among those terms: How co-signing for the loan will work out.

As you’ve discovered, Sonia, “co-signing” sounds much more innocuous than it is. You’ve essentially committed to paying off this loan if the person who took it out fail to do so. The lender doesn’t really care if you have the money, or if it’s a hardship to pick up those payments. You’ve signed a legally binding contract.

Five years ago, the Consumer Financial Protection Bureaureported, “more than 90 percent of new private student loans are co-signed, often by a parent or grandparent.” Since then, student loan debt has topped $1 trillion. So I imagine that figure has increased.

The bottom line is, if the lender doesn’t want to let you off the hook, it doesn’t have to — but it doesn’t hurt to ask. If the loan you co-signed came from Sallie Mae, a popular provider, there’s actually a process for that. However, the borrower has to ask for you to be released. You can’t do it alone.

If you’re in dire financial straits, and paying off someone else’s loan is pushing you toward bankruptcy, then it gets even worse: Bankruptcy doesn’t automatically relieve you of student loan obligations. That gets complicated because bankruptcy rules vary by state, but has a report called What If You Cosigned a Borrower in Bankruptcy?

If after reading that you still have questions, call at (855) 996-9526 and ask for a free debt analysis. Because you didn’t provide other details, there may be options you don’t know about. For instance, if the borrower agrees to get you off the loan, it might be easiest to simply refinance or consolidate into a brand-new loan.

For those reading this who are thinking about being a co-signer on a student loan, I hope this gives you pause. If you’re a parent, relative, or friend trying to help a young person graduate from college, there are other options. Please explore them first.

Have a debt question

Email your question to and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of, and author of two personal finance books, Credit Hell: Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.