RESOLVING YOUR DEBT DILEMMA
DEAL WITH IT
Don’t sacrifice everything else to pay your loans off quickly. Chances are, your federal loans carry a relatively low interest rate, so stretching payback over the full repayment period doesn’t ‘cost’ you too much. As your salary increases the repayments become easier to handle, and there’ll be more revenue for other goals. If your circumstances are making repayment very difficult, here are some suggestions to consider.
START SMALL
If you have more than one loan, focus on paying off the one with the smallest balance. Then go on to the next smallest loan. You’ll still need to make minimal payments on the other loans, while paying as much extra as you can manage on the targeted one. But seeing those loans become ‘paid in full’ is quite a psychological boost.
JETTISON THE MOST EXPENSIVE
It’s another strategy experts recommend. Interest rates on some private loans can be as high as 15%. Paying off these expensive loans first can be a smarter financial move than investing that money and earning far less of a return. Use the ‘minimum/maximum’ strategy discussed above to make those heavy hitters disappear.
SPEAK TO YOUR SERVICER
Did you even know you have one? Every student borrower is assigned a loan servicer by the federal government. Many private lenders also provide them. (S)he should be the first one you call with questions, or for help if you’re are having trouble making payments. Your servicer may suggest student loan consolidation to simplify your payment process; or perhaps a different repayment plan can be created.
STUDENT LOAN FORGIVENESS
In very rare cases, federal student loans can be immediately forgiven. These instances include suffering a permanent disability that makes it impossible to work, or if your school closed, or somehow defrauded you. Again, these are rare and you should beware of scams.
Get the real lowdown at: www.studentaid/ed.gov/sa/reay-loans/forgiveness-cancellation/public-service
OTHER FEDERAL FORGIVENESS PROGRAMS
Here are some additional options to explore:
Income-based Repayment (IBR) forgiveness – If you have a very large loan balance in relation to your income, consider capping your payments at 10-15% of your monthly income. After 20 or 25 years, your remaining loan balance will be forgiven. Qualifying loans include Direct Subsidized and Unsubsidized Loans, PLUS Loans, FFEL Stafford Loans, consolidated Federal Perkins Loans, and others. Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are similar income-based programs.
Get details at: www.studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven
Loan forgivness for Teachers, Nurses, Public Servants, Not-For-Profits – A number of programs are available. Requirements vary, and can include making a certain number of payments, being employed in low-income areas, etc.
Again, get the details from the Department of Education at www.ed.gov
LOOK WHERE YOU WORK
If you don’t qualify for government forgiveness, find out if your employer offers student-loan repayment benefits. Companies are beginning to provide this option as a way to attract young employees. Some high-profile companies are offering up to $30,000 for eligible candidates, and even provide online tools to help them manage their debt. And student loan refinance companies are getting on board with programs that enable employers to make contributions to their employees’ loan.
PUT IT ON AUTO-PAY
Lenders usually offer a small discount when you set up an automatic payment program. These savings can mount up over the life of your loan. Plus you ensure never having late payments, which could cost you money and hurt your credit score.
CONSIDER REFINANCING
This option can save you money in the long-term. Basically, you bring your student loans to a lender, who gives you a new loan, and new interest rate, usually from 4–7 %. You also get a new repayment schedule that’s based on your income, credit rating, and debt to income ratio and other criteria. Benefits include lower interest rates than the federal government loans. But your repayment plan is less flexible.