The average undergraduate student leaves school with between $25,000 and $52,000 in student loans, questioning how to pay off student loans and still live life comfortably. For the past 10 years, college tuition has steadily increased, leaving 2/3 of the student population to borrow money to pay for college.
This has largely shifted the burden of attending college to private student loans. While it is one of the most profitable, uncompetitive types of debt, it also has a predatory nature, leaving many students in despair about student loans repayment.
Nearly 70 percent of students leave school burdened with student loans. Close to $800 Billion of student loan debt is outstanding. While the end result is definitely worthwhile, students must understand all the provisions available to help pay back student debt.
Public Service Loan Forgiveness
There are ways for student debt to become magically forgiven and it may sound farfetched to simply erase your loans, but working for a not-for-profit, or a government agency can pay off in a big way.
There is a public service loan forgiveness program for those who commit to working for the government, or a 501(3c) non-profit agency, for 10 years. There is no application, just paperwork to complete once the individual has completed 10 years of service.
- Anyone can qualify for the public service loan forgiveness program by working for any level of government, whether it is a city, state or federal government, as well as a 501(3c) non-profit agency.
- There is no income-based repayment plan. All loans must be through direct lending; if not, consolidating the loans will qualify the individuals for the forgiveness program.
Income Based Repayment Options
Individuals paying off student loans have the law on their side. When student loans are more than the monthly income, the solution is negotiating income-based payments. This type of repayment plan is based on an annual formula of what individuals can afford and their family size.
Monthly payments can never be more than what individuals would repay on a standard 10-year repayment plan. Those individuals paying back student loans with very low annual incomes may have payments reverted to zero; however, the interest on the loans will still accrue. For the first three years of an income-based repayment, the government picks up the tab of any interest on subsidized loans.
Individuals must re-qualify for the income-based repayment option each year, based on their annual income.
Defaulting and Paying Back Student Loans
Many people are tempted to consolidate loans after the first signs of trouble, however, there are time constraints built into your loan agreement – most students fail to read this fine print.
It is advantageous to wait after nine on-time payment before considering any loan consolidation. Making the initial nine payments qualifies student loans to be eligible for rehabilitation. This can make a huge difference in becoming eligible for future loans.
Once a student loan is deemed eligible for rehabilitation, the loan can be resold to a new lender. Individuals can then renegotiate new payment terms with the new lender. The new payments can be negotiated based on the current financial situation.
Deferments and Forbearance can Halt Student Loan Repayment
The scariest thing about repaying student loans is the thought of no longer being able to afford the payments. It definitely will end up on credit reports and that derogatory credit mark can kill a FICO score.
Students can request a deferment or forbearance, based on various criteria.
- Deferments are preferred because the government pays the interest on subsidized student loans. Deferments provide a temporary reprieve from paying back student loans. Economic deferments require proof of income and are limited to three years.
- Certain types of forbearance are much easier to obtain than approval for a deferment.
- Most people today qualify for hardship forbearance because of the economic downfall. These are generally approved one year at a time and the total amount is normally equal to three years. While this is a temporary reprieve from payments, interest will still accrue.
- Once people become armed with a few strategic methods of how to pay off student loans and some smart analysis of budgeting issues, the process of surviving college debt becomes easier.