Did You Take Out Too Many Student Loans? Here Are Your Options

Student loans can help you get an education, but estimating your financial need is important. So how do you know if you have too many student loans? 

If you’re having trouble managing loan payments or got a sizable refund check from your school, those could be signs that you have too many student loans or borrowed more than you need. Too much student debt isn’t ideal, but we found several solutions.

We’ll share what to do if you’ve struggled to track and pay your federal or private student loans. 

How much student loan debt is too much?

Opinions differ on how much student loan debt is too much. According to the Consumer Financial Protection Bureau, for instance, you shouldn’t accumulate more student debt than you expect to earn in annual salary during your first year in the professional workforce. 

If you expect to earn $65,000 in the first year of your career, you should leave school with no more than that amount in student loan debt. This rule of thumb assumes you can pay off your loan debt within 10 years. 

But how realistic is that? Let’s assume the following:

• You have $65,000 in student loans at 5% APR with a monthly payment of $689. 
• Assuming a $65,000 gross annual salary, you take home $4,455 per month.
• After making your student loan payment, you have $3,766 left. 

Now, think about other monthly expenses you might need to cover:

• Rent
• Insurance
• Auto loan
• Utilities
• Phone and internet
• Healthcare
• Groceries and food
• Childcare
• Pet care
• Credit card payments

It’s easy to imagine how that may not leave much extra cash to cover basic living expenses or have a little fun. And the take-home pay number above doesn’t account for anything you might contribute to your 401(k). 

In this scenario, you might feel you have too many student loans after following the salary rule of thumb.

What is a realistic way to assess whether your student loan debt is manageable? Our expert weighs in

Erin Kinkade

CFP®

This is difficult to generalize, but students can research the entry-level position pay for the career they’re pursuing in an average-to-low cost-of-living area to remain conservative on the pay. (I realize some jobs may be immune to demographics.) Once they determine a rough earnings estimate, I suggest they create or get help creating a hypothetical repayment plan over the average years the loan needs to be paid—and then create a hypothetical budget to ensure the payments are a staple of their monthly expenses. But if a student needs to take out loans to educate themselves to gain employment and earn income, it is an investment in themselves. They shouldn’t forgo this because their loans don’t meet the standard rule of thumb.

What to do if you have too many loans to repay

If you have too many student loans to repay, what you do next can depend on whether you have federal loans, private loans, or both. If you’re unsure which type of loans you have, you can do one of the following:

• Review the information on your promissory note
• Log in to the StudentAid website to see which type of federal loans are in your name
• Contact your lender or loan servicer to ask

Once you know the details, you can evaluate your options for dealing with too many student loans. Here’s a quick breakdown of the possibilities.

Options if you have federal student loans	Options if you have private student loans	Options if you have both
Income-driven repayment	Refinance	Refinance
Loan forgiveness	Payment plan renegotiation	Manage each loan type separately
Deferment or forbearance	Hardship benefits
Consolidation

When you have too many federal student loans

Federal student loan borrowers have the most options for managing their debt. The one you pursue can depend on your financial situation and long-term repayment plans. 

Apply for income-driven repayment

Income-driven repayment (IDR) tailors your student loan payments to what you can realistically afford based on your income and household size. The four income-driven repayment options are:

• Saving on a Valuable Education (SAVE) (formerly REPAYE)
• Pay As You Earn (PAYE) 
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)

The upside is that you can reduce your monthly payment—to $0 in some cases. After 20 or 25 years, any remaining loan balance is forgiven. 

However, interest can continue accruing on your loans, leaving you with a larger amount to repay. If you no longer qualify for IDR, you may feel even more burdened by your loans. 

Explore loan forgiveness

Public Service Loan Forgiveness (PSLF) might be worth considering if you plan to work in a public service role. You’d enroll in an IDR plan and make 120 qualifying payments. After making those payments, you could get the rest of your student debt forgiven.

That’s terrific if you borrowed a larger amount in federal loans to pay for school. But qualifying can be difficult. Failing to follow all the Department of Education’s guidelines could cause you to miss out on getting your loans forgiven.

Deferment or forbearance

Deferment and forbearance allow you to pause loan payments under certain conditions. If you’re experiencing a financial hardship that’s making it difficult to pay your loans, you might qualify for both. 

The main difference between the two is that interest doesn’t accrue on some types of Direct Loans during a deferment, but it will during a forbearance. In other words, forbearance could leave you with more loan debt to repay. 

Consolidation

Consolidation allows you to combine multiple federal loans into one. That won’t reduce the amount you owe, but it could make your loans more manageable. Instead of several loan payments each month, you’d make just one. 

When you have too many private student loans

Private student loans can fill the gap if you exhaust your federal student loan limits. Here are ways to manage them when you have too many loans. 

Refinance

Student loan refinancing means taking out a new loan to pay off your current ones. This can offer several advantages:

• Potentially lower your interest rate
• Reduce your monthly payment
• Extend your loan term

You’ll typically need a good credit score to qualify for the best student loan refinancing rates. If you have less-than-perfect credit, getting someone to cosign your loans could help you get more favorable terms. 

Negotiate a new repayment plan

You might try contacting your lender to explain your financial situation and ask about restructuring your loan payments. Unlike refinancing, this wouldn’t affect your interest rate but could make your payments more manageable. 

Lenders aren’t obligated to honor your request. But it may be worth asking for a modification if changing your loan terms would give you breathing room in your budget. 

Hardship benefits

Private student loans aren’t eligible for federal deferment or forbearance options, but some lenders may offer an equivalent. SoFi, for instance, offers multiple repayment options in case of hardship, including:

• Deferment
• Forbearance
• Payment reductions
• Loan modifications

If you’re unsure what your lender offers, it’s worth making a phone call or sending an email to ask. 

When you have federal and private student loans

Consider which approach might work best if you have federal and private loans. This may depend on how much of each type of loan you have, the interest rates, and monthly payments. 

Refinance

There’s no rule preventing you from refinancing federal student loans into a private loan, and you might consider it if you want to streamline payments or get a lower interest rate. However, you’ll lose valuable benefits and protections that come with federal loans, including:

• Deferment and forbearance options
• Loan forgiveness options
• Income-driven repayment options

Once those benefits are gone, you can’t get them back. So it’s wise to weigh the pros and cons of refinancing before deciding. 

Handle each separately

Following our advice, you could manage your federal and private loans separately. For example, you might refinance your private loans while applying for an income-driven repayment plan with federal loans. 

A combined approach could make your debt easier to handle without costing you any federal loan protections. 

What to do if you have too many student loans and don’t need the funds

If you got money back from your school, you might have borrowed more than you needed. To put it another way, your cost of attendance was less than your loan amount. 

When you get money back from student loans, you have several choices:

• Use it to cover other education expenses, including basic living expenses
• Put it in a savings account to cover potential shortfalls from future loan disbursements
• Send it back to the lender

If you don’t need the extra funds, sending student loan overages back to the lender is often the best option. The lender can apply that amount to your loan balance, so you have less to repay when you leave school. If you decide to keep it, you may want to check with your lender to see whether it has prohibited uses for the money. 

How to avoid taking out too many student loans 

If you plan to apply for student loans, the golden rule is only to borrow what you need. You can estimate your cost of attendance by adding up everything you expect to pay for, including:

• Tuition
• Fees
• Room and board
• Necessary books and supplies
• Transportation

Once you have a number, you can use that as a baseline for deciding how much to borrow each academic year or term. Also, consider what you can do to minimize your student loan needs. 
That might include applying for scholarships or grants to help pay for school. Federal work-study may also be an option if you’re comfortable having an on-campus job, or you might get an off-campus job instead. The more you can contribute to your education costs out of pocket, the less you’ll worry about repaying when you graduate.