5 Worst Ways to Pay Off Student Loans

Worst ways to pay off student loans

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Perhaps you already graduated from college and are starting your career. Yay, you!

But let’s say you still have student debt payment obligations each month.

Sometimes, desperate times call for desperate measures and some of those measures I have listed below.

Keep an open mind and take these popular but possibly ineffective methods for paying off student debt with a pinch of salt.

Yes, some of these ways could work for you and your situation. But, the likelihood is, they also may not work for you and your situation.

Worst Ways to Pay Off Student Loans

1. Private Loans

Taking on private loans, in my book is a no-no, unless it’s an absolute MUST – as in, you work your butt off to make extra cash to pay for college and that’s not enough. 

 You used every last cent in your wallet to pay for those student loans and that is not enough. 

You asked your parents to borrow money from them (at a low or no interest rate) and that’s not enough. 

You sold everything you don’t need and used that money toward paying your student loans and that’s not enough. 

And you applied to every federal loan program there is and that’s not enough. 

You catch my point. 

Private loans are a last chance resort.  

As you can see, I’m not really a big fan of private loans. 

In fact, I really don’t think anyone should go for them because of a few factors, which I have listed below:

Why private loans are not your best option:

  • Charge typically higher interest rates than federal student loans.
  • Typically are less forgiving than student loans (such as during pandemic crises like the coronavirus crisis).

Fun Fact: Did you know that federal student loans deferred any interest or principal payments during the coronavirus crisis until September 30, 2020?

I’m not saying go for federal student loans if you don’t have to – but if you have the option to select either applying for a federal student loan or a private student loan, the decision here is obvious: federal all the way (at least that’s my opinion). 

The private loan lenders, in contrast, oftentimes did not stop monthly loan payments – especially during the pandemic crisis. 

This really depends on the type of private lender you have and possibly your repayment history as well. 

What I’ve found is that private lenders often make exceptions based on a case by case basis.

In other words, if you consistently make loan repayments, and call up your private lender stating that you had recently lost your job due to the pandemic and are unable to make loan principal and interest payments – you have a much higher likelihood of that lender understanding your situation and possibly waiving principal and interest payments for a certain period of time.

You don’t know until you ask. 

And the worst answer you could receive is “no.”

minimum payments

2. Minimum Payments

Ok, this certainly is an option for the short term.

Making minimum payments could be an option if you are cash flow poor and can’t afford to make additional payments to pay down your student debt. 

However, this is by far not the best strategy to pay down your student loan debt. Why? 

First of all, you really won’t be touching your principal payments (the original student loan amount) because minimum payments typically just place your payments toward interest pay down. 

(In other words, private and public lenders first want their money back in the form of interest before you pay back the original amount you owe – in other words, your principal payment). 

Even worse: Some statistics show that the average student debt payment “sentence” is between 21 years to LIFE. 

Imagine paying your student loans for LIFE – just because you’re making the minimum payment. Not for me.

What is a solution to this overarching and growing problem? 


Consider increasing your average monthly loan repayment so that you make a dent into your principal. 

Remember, if you pay down your principal faster, then the overall interest owed will also eventually decrease.

The most important thing here is making mini-goals and not expecting to see a big difference by the fifth or twelfth month of making payments. 

It’s a long-term game like I said before, but as long as you stick with your plan and strategy, then you will see success. 

I’ll talk more about this later on. 


3. Bankruptcy

Whoa! I said it… the “b-word.” 

Bankruptcy – similar to student loans – is a very, very ugly word but it certainly is an option for some people who find that student loans are just dragging them down. 

Perhaps you don’t have anything to lose and just want to start with a clean slate.

Ok, if you are at this point in your thought process, let’s talk through this to determine whether this is the best solution for your situation. 

First, filing bankruptcy with the hopes of eliminating student debt is very difficult. 

It’s easier to file for bankruptcy and have other debts (such as credit card debt) erased from your record than student debt. 

So beware and make sure you do your proper research before actually going through and filing for bankruptcy!

Second, filing for bankruptcy can harm your long term record – and of course your credit rating. 

You’ll have a much harder time (if at all) to apply for a credit card, apply for a loan to purchase a car, a house, etc. 

Your credit score will be impacted adversely. 

And your public record will show your bankruptcy for either 7 years or 10 years – depending on the chapter that you decide to file. 

Chapter 7, for example, will show your bankruptcy on your public record for 10 years, while Chapter 13 will show your bankruptcy on your public record for 7 years. 

The major difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy:


Chapter 7 – is when you are unable to repay ANY debt. 

 (So your debt is wiped clean, but typically this is the last resort action… filing Chapter 7 will have severe long-term consequences on your record).

Chapter 13 – is when you can repay a portion of your debt by establishing a debt repayment plan where you, the court and your creditors agree upon the repayment schedule. 

 Typically – if you can afford it – Chapter 13 is the way to go assuming you are considering bankruptcy. 

Again, let me rephrase: filing for bankruptcy in the hopes of wiping your student loans typically will NOT fly with the court and your lenders. 

The only way for your student debt to be erased after filing for bankruptcy would be if you were able to prove that repaying your student loans would cause you “undue hardship.”

The recommendation in this situation? 

Consult a bankruptcy lawyer before taking any further course of action. 

Filing for bankruptcy is a costly and permanent item on your record.

loan forgiveness

4. Loan Forgiveness

Depending on the type of loan program you signed up for, the federal government may forgive a portion or all of your student debt.

Typically the loan forgiveness programs are aimed at the public sector jobs (such as non-profit jobs, teachers, nurses, etc.). 

If you are considering pursuing this route – keep in mind that even one tiny mistake when filing your loan forgiveness paperwork could void your request to have your loan forgiven. 

I actually know 2 of my friends who are in debt by over $100,000 in student loans (they are married), filed for a loan forgiveness request but had one type-o, which voided their loan forgiveness.

Or at least that was the response they received after submitting their forgiveness request paperwork. 

Another thing to consider is the time it takes until the loan forgiveness comes into effect. 

Don’t think that you can just get off the easy way by not paying anything toward your student loan. 

For your loan to be forgiven, you’ll still have to make payments toward that student loan (oftentimes, people chose to make minimum payments since they expect their loan to be forgiven anyway). 

Depending on the student loan program, you may have to repay your loan for 10, 20, or 25 years before a single cent of the loan is forgiven. 

In other words, you could be paying well into your late 50’s or 60’s until the loans are forgiven by the federal government. 

Now the question is whether this program will still be in effect in a quarter of a century!

The last two things to consider when considering applying for a loan forgiveness program

1) The forgiveness program only applies to federal loans (not to private lenders. You will be on your own at that point). 

2) If your loans are forgiven, any amount of the forgiven loan will be considered taxable income to you in the year that the loan is forgiven. 

In other words, if you have a $100,000 loan forgiven, the same year that loan will be forgiven, your tax return will show you have earned income of $100,000 plus whatever your regular earned income is… in other words, get ready to shell out a good amount of money to pay your tax bill.

Just remember: there is NO such thing as a free lunch.

loan consolidation

5. Loan Consolidation

Simply put, this could be a method for those who have multiple outstanding loans. 

Don’t you hate paying bills to 5 or more different companies?

I sure do. It’s just such a hassle. 

Why can’t you consolidate the debt so that you make 1 monthly payment to 1 lender? 

That’s the thought when it comes to loan consolidation

Typically, through loan consolidation, you would get a new term to pay off your loan and you would also get a new interest rate. 

Sometimes that new interest rate could play in your favor.

For example, if you are considering consolidating your today with a record-low interest rate environment, it might make sense to do so, if you can save 1 or 2-plus percentage points in interest (which means more money in your pocket!).

However, depending on the loan consolidation program you go through, and depending on several other factors possibly outside of your control, you may not get the best deal with loan consolidations.

Your term of paying off your student loans likely will increase (in other words, if you are already paying 4 years into your loans out of 20 years, a consolidation effort may elongate that term back to 20 years and your clock starts ALL OVER again), and you may also see higher interest rates… 

It’s a gamble and it’s something that I would suggest to stay away from this option – unless you think it’s the only way forward. 

Now, we’ve talked about a couple of student debt pay-off strategies that may not work in your favor… 

What about a student loan pay-off strategy that could annihilate your debt while you still live a decent lifestyle?

Final Thoughts

These are 5 ways that a lot of people think are appropriate when it comes to paying down student loans.

Read through each of these ways and reconsider that it might actually not make sense to make minimum payments, consolidate your loan, or file for bankruptcy.

Of course, in the end, it really comes down to your personal situation.

The most important thing to remember is: Be consistent with your student loan pay down strategy and be purposeful. Remember that there is a light at the end of the tunnel – you just have to keep moving forward. 

There may be rocks or bumps on your path – but you’ll get there.

Save hard, work hard, and try to avoid these 5 worst ways to pay off student loans. 

Your bank accounts will thank me later!

What are some strategies you have employed to reduce your student loan debt?

Fiona Smith
Fiona Smith
Fiona Smith is the founder and CEO of The Millennial Money Woman. She has spent 10+ years studying finance, with the last 7 as a wealth and investment advisor. She has worked with clients with a net worth of up to $100M and holds her Master of Science Degree in Personal Financial Planning. She has also co-founded a local non-profit community teaching financial literacy and her work is featured on Forbes, FinCon, and MSN.

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