How Paying Off Student Loans Works

Consolidation and Loan Forgiveness Programs

Four or five years of teaching is one possible way to have your student loan debt forgiven.
Four or five years of teaching is one possible way to have your student loan debt forgiven.

If you're paying off a student loan over 10 or more years, chances are your life will change a lot over that time. You might buy a house or a car, get married, have children or some combination of all of these. As things change, you can adjust your repayment options to alternatives that better meet your lifestyle.

Student loan consolidation lets you pull several loans together into one loan. This can help you take advantage of a lower interest rate, and it can often lower your minimum monthly payment. You can consolidate your federal loans with the government's Direct Consolidation Loan program or with an institution lending under the Federal Family Education Loan (FFEL) program.

You can't consolidate private loans with a federal loan. You could, however, take out a private consolidation loan to pull everything together. You could even use a home equity loan to combine them. To keep your interest rates as low as possible, though, you should probably consolidate your federal loans separately. Shop around to find the best interest rates and repayment terms.

Another reason to consolidate your loans, or move your current loan into a new loan, is to change your loan terms. Besides taking advantage of a better interest rate or lower payments, you can also change your repayment options, such as requirements for deferment or penalties for missed payments. Again, shop around to find the best loan terms.

Consolidation can lower your cash payments, but what about other ways to pay off your balance? The federal student loan program offers loan forgiveness options depending on the types of loans and your current financial situation. For example, you could cancel all or part of your federal loans by teaching full time for a few years in a low-income school or covering material in a certain subject area [source: U.S. Department of Education]. You might also qualify for loan forgiveness if you work in a public service job such as the Peace Corps or a non-profit health services group [source: U.S. Department of Education]. Research private organizations and your state and local government to find similar loan payoff options in exchange for your service.