The Smart Way To Pay Off Student Loans

If you’re anxious about paying off your student loans, you’re not alone. As of 2025, more than 43 million people in the United States held educational loans, and more than 5 million of those people were in default – amounting to over $1.6 trillion total in outstanding federal student loans.¹ Here are seven tips on how you can keep from sinking:

Tip 1: Know your debt.

The first step is making the time and space to take stock of where you are. How much student loan debt do you have? Do you have private loans, federal loans or both? If you have one or more federal loan, your first stop should be the National Student Loan Data System, which allows you to look at all of your federal student loans in one place. For private student loans, there is no one-stop shop to look up your loan information. You will have to reach out to each of your loan servicers or providers to determine your loan balance and repayment terms.

Tip 2: Understand your repayment options.

Once you have a firm grasp on the kind and amount of debt you have, you can begin to figure out which federal repayment plan is best for you. Under the One Big Beautiful Bill Act (OBBBA), passed in the summer of 2025, federal student loan repayment options are changing.

Beginning July 1, 2026, there will be fewer repayment options, as most existing income-driven repayment plans are being phased out. While existing borrowers can remain in those plans temporarily, the programs will be fully retired by July of 2028 – so talk with your Baird Financial Advisor about steps you need to take before that deadline.

Federal student loan repayment plans generally fall into two categories: fixed repayment plans and income-driven repayment plans. The following outlines the repayment options currently available to existing borrowers, those being phased out and new plans that will take effect for loans disbursed on or after July 1, 2026.

Fixed Repayment Plans

Payments are set on a defined schedule and do not change based on your income.

Currently available but ending for new borrowers as of July 1, 2026

• Standard repayment plan, where your loan balance is divided into equal monthly payments over 10 years, with each payment covering both principal and interest. This is the default plan if you do not select another option. While this particular plan is going away for new borrowers, a revised version is available beginning in July.

Currently available

• Graduated repayment plan, where payments start lower and increase every two years over a 10-year period. This option may be helpful early on, but you’ll generally pay more over time than the 10-year standard repayment plan.
  
  
• Extended repayment plan, where you pay a lower monthly payment over a longer period of time (up to 25 years). To be eligible, you must have more than $30,000 in outstanding Direct Loans. Payments may be fixed or graduated, but you’ll typically end up paying more in interest over the life of the loan.

Effective July 1, 2026 for new borrowers

• Revised standard repayment plan, a new version of the standard plan for loans disbursed after July 1, 2026. Payments remain fixed and include interest, but the length of repayment may be longer or shorter than 10 years depending on your loan balance.

Income-Driven Repayment Plans

Monthly payments are generally based on income and family size, and may offer loan forgiveness after a set repayment period.

Currently available but ending for new borrowers as of July 1, 2026

• Income-Contingent Repayment (ICR), where payments are based on income, family size and loan balance.
  
  
• Pay as You Earn (PAYE), where monthly payments are tied to income and generally capped at a percentage of what you earn.
  
  
• Saving on a Valuable Education (SAVE), which reduces monthly payments for borrowers with lower incomes and provides additional benefits when payments do not cover accruing interest.
  
  
• Income-Based Repayment (IBR), where monthly payments are generally based on your income and family size rather than how much you owe.

Effective July 1, 2026 for new borrowers

• Repayment Assistance Plan (RAP), designed to provide payment flexibility for borrowers with lower incomes and adjust payments as income changes. Under the OBBBA, RAP will be the primary income-based repayment option available to most new borrowers after July 2026.
  
  
• New Income-Based Repayment (IBR), an income-driven option that will remain available as legacy income-driven plans are phased out and borrowers transition to new repayment structures.

Note: After July 1, 2026, Parent PLUS borrowers are generally not eligible for RAP or other income-driven repayment options and would remain on fixed repayment plans unless already enrolled in qualifying plans.

To stay up to date on decisions affecting these plans, please visit the Federal Student Aid website.

Finally, keep in mind some employers offer educational assistance benefits that can be used toward student loan debt. In 2026, employers can provide up to $5,250 of educational assistance per year to employees tax-free. Be sure to talk with your employer to see whether this benefit is available to you.

Tip 3: See if you qualify for relief.

In addition to the repayment plans, some borrowers may be eligible for federal loan forgiveness programs based on their employment details. Below are potential options for public service employees and teachers.

• Public Service Loan Forgiveness (PSLF), where applicants who are employed by a federal, state, local or tribal government or nonprofit organization can be eligible for loan forgiveness after making the equivalent of 120 qualifying monthly payments while working full time for a qualifying employer. Be careful, though: There have been many instances where people who thought they were in the PSLF program found out they were not, many years and thousands of dollars later. Submitting an employment certification form signals to the loan servicer and the Department of Education that you’re intending to pursue this program, and you will be sent a letter if you risk falling out of compliance. PSLF applicants should resubmit this form annually and any time they change jobs.

• Teacher Loan Forgiveness Program for applicants that teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school or educational service agency. Applicants may be eligible for forgiveness of up to $17,500. This is available for Direct Loans and Federal Family Education Loan (FFEL) Program Loans.*

To learn more about all types of federal student loan forgiveness, cancellation and discharge, please refer to the Federal Student Aid website.

Note that while you will not pay federal taxes on loan forgiveness, some states treat forgiveness as ordinary, taxable income. When applying for forgiveness, you will want to plan accordingly for tax time by reviewing your state’s tax laws. Your Financial Advisor can work with your tax advisor to evaluate if any loan forgiveness you receive would be taxable.

Tip 4: Be your own advocate.

While your loan servicer is an important point of contact, understand that they are serving as your loan institution’s advocate, not yours. Do your own research and ask for confirmation in writing that you’re in the right plan and the right program.

A good example of this dynamic can be seen in what is known as forbearance. If you are struggling to make your payments and call your loan servicer about your options, they might want to place you in forbearance, which allows you to skip payments for a few months. While that might seem like a helpful option, it carries with it several disadvantages: Not only is it easy to let three months of forbearance turn into six or 12 (pushing you that much farther away from paying off your debt or achieving debt forgiveness), but when forbearance ends, you often have a higher interest rate, monthly payments and total debt than you had before accepting forbearance. That’s why it’s important to do your own research and understand your repayment options.

Tip 5: Keep your contact information current.

Ten, 20, 25 years can be a long time, and a lot can happen while you’re paying back your student loans – you might move, change jobs, get married or change phone numbers. In the hustle and bustle of daily life, it’s easy to forget to keep your loan providers up to date with your most recent contact information. Many people become unaware of problems with their loans simply because their loan providers’ warnings are delivered to old addresses and phone numbers.

Tip 6: Maintain your budget.

When you’re talking about thousands or tens of thousands of dollars of debt, you might be tempted to throw your budget out the window – when actually you need your budget now more than ever. Keeping a realistic budget lets you make smart financial decisions on how much to spend, how much to save in an emergency fund, how much to put in a 401(k) or IRA and how much to put toward your loans. It can also help you establish a strategy to paying down debt in a way that works for you, without resorting to credit cards.

Tip 7: Carefully weigh the pros and cons of debt consolidation and refinancing.

Whether you’re rolling up multiple federal loans into one loan (consolidation) or into a private loan at a lower interest rate (refinancing), there can be significant risks and benefits to combining your student debt. Perhaps the biggest danger to consolidating or refinancing is that you may lose some of the protections and benefits that you get with your original loans, such as eligibility for the PSLF program, loan forgiveness or an income-driven repayment plan.

One final word of advice: Watch out for scammers. You might get approached by seemingly legitimate companies offering you better terms and convenience if you send your loan payments directly to them. If you’re looking for help navigating your payments and ensuring you’re making smart decisions regarding your student loans, your Baird Financial Advisor is a great place to start.

Editor’s Note: This article was originally published April 2020 and was updated January 2026 with more current information.

This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.

*No new FFEL Program loans have been made since July 1, 2010, but you may have an FFEL if you were attending school before that date.