1/16/2012 3:12 PM ET|
Wipe out your student loan debt
There's no easy way to escape from your college loans, but for most people, options such as repayment and forgiveness plans do exist. The point is to avoid defaulting.
Here are two things you need to know about student loan debt:
1. There's no magic wand that makes it easily disappear.
2. The more desperate you are, the fewer options you may have for relief.
The rising default rate on federal student loans reflects these realities. The U.S. Department of Education in September said 8.8% of borrowers had defaulted in their first two years of repayment, up from 7% the previous year.
That's just the tip of the iceberg. When the window is expanded beyond the first few years of repayment, the default rate soars. One in five federal student loans that entered repayment in 1995 has gone into default, according to a review by the Chronicle of Higher Education.
Still, most people have better options to deal with their education debt than to simply stop paying it. A smart repayment approach can get you out of debt faster or at least make your loans more manageable as you build the rest of your financial life.
Here's what you need to know to start planning your escape from student loan debt:
Understand the trade-offs
Federal student loans offer a variety of repayment options. If the payments on the standard 10-year repayment schedule are too high, you may be able to get extended plans that lower payments by stretching your loan term out to as many as 30 years. Or you can ask for graduated payments that start smaller and get bigger over time. Or you can take advantage of repayment plans based on your income.
The longer you take to pay back the loan, the more interest you'll pay. Switching from a 10-year to a 20-year plan, for example, will cut your monthly payment by about one-third but will more than double the total interest you'll pay, said financial aid expert Mark Kantrowitz, the publisher of FinAid and Fastweb.
If you have a manageable amount of federal student loan debt and can afford to make the bigger payments, you should do so. But consider opting for lower payments, even though you may pay more interest, if:
- You really can't afford a larger payment right now.
- You otherwise couldn't save for retirement.
- You have private student loan debt in addition to federal loans.
Focus on your private student loans first
Unlike federal student loans, private student loans have variable rates. Even if the rates are low now, they likely won't stay that way for long, Kantrowitz said.
Private student loans also have fewer consumer protections and repayment options than federal loans, plus no forgiveness options -- more reasons to dispatch this debt as fast as you can. Consider paying the minimum possible on your federal loans so you can throw more money at your private loans. Your lenders can help you compare your repayment options; if you're not sure who holds your loans, start your search here.
Consider income-based repayment plans
Federal student loans offer three repayment options that are tied to your earnings: income-contingent, income-sensitive and income-based. The income-based plan is the most generous and can even get your payments down to zero if you're poor. The plan caps payments at 15% of your so-called discretionary income, which is the difference between your adjusted gross income and 150% of the federal poverty line.
This cap will fall to 10% in 2014. (The cap will fall this year for certain borrowers, who will be notified this month by mail if they're eligible for lower payments. To qualify, the borrowers can't have taken out any loans before 2008 and must have taken out one new loan in 2012.)
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I pay my taxes, and I don't believe street lights and paved roads are a free for all. Here's a newsflash for you, I support taxation. The military doesn't protect me more just because I pay more. I don't get special privileges on the highways because I paid more towards their construction than lower wage earners. Get the picture?
Although my father died almost 20 years ago, I can promise that he paid quite a bit more than the pittance you alleged. I was the executrix of his estate, and through his income taxes alone, he more than covered the cost of my education, and probably half the people in my class. In addition, the amount paid by way of the estate tax (aka death tax), paid for at least a few of those $50,000 toilet paper rolls purchased by the military. Again, I support taxation for public schools, roads, and military.
Finally, I don't associate with any "generation", so I'm not sure to whom you refer. I don't consider myself young, but thank you for the compliment. And perhaps you are shelling out your frustrations on some other poster, as I made no comments about "useless old people" or anything of that sort. Providing assistance to those IN NEED is a moral judgement call, but one that I emphatically support. Just to be clear.
I wouldnt say that fornecouss wants a pitty party. I would say that the ones whining about having to pay back their loans want the pitty party. With that said, your points are well taken but for one. It does take all of us to pay for schools, roads and military but that is not what we are talking about. Going to college is a choice and there are no gaurantees that go along with it.
If a person cant afford college, perhaps they should consider a trade. I know many sucessfull plumbers and electricians. How about a carpenter. It just seems like young people dont want to work with their hands unless it is for texting or updating their Facebook status.
One things for sure. I work to hard to have to pay for someone elses college education. Maybe if Washington didnt waste so much of our money there would be some left to do these things but because there is not one straight politician in the bunch, that will never happen.
Wow everyone is WAY to harsh on student loan people. We shouldnt lump everyone into the same category.
Some people go to college because its a natural choice. I knew a girl who was in a dysfunctional household and her only way out was college. She knew working 2 jobs even partime work would not afford her an apartment or even room to rent. I think she was smart to go to school rather than getting on the merry go round of constant struggling. She got a degree (with some student loans) and now is living in a home with her husband in a household that is 1000 times better than where she came from. This story is not uncommon. Some kids cant stay home with mommy and daddy while going to community college. Some of you forget that A LOT of children dont have familial support that most dont think about.
I was not allowed to stay home after high school. My parents said Airforce/Army or School (AWAY). They didnt believe in mediocre jobs and staying home. It was not progress to them. So I went to a state school and graduated with 25K in student loans with a B.S in Economics. I realized that I wasnt getting salay offers to stay out of my parents house so I went back for my M.S in Accounting....which brings me to my other point:
My parents didnt go to college. I was the first. Therefore there was no prior knowledge and guidance to give me as an 18 year old in navigating the world of student loans or credit cards. And for those of you who dont know most African American students are first generation college graduates these days and will be for a while until my generation has kids. That means no one was there to guide them through their options especially financially. They have to make the mistakes so they can enlighten thier children.
For many of us its not a choice per se but the best of our options. Many children from poorer families use college to break the cycle.
And just to clarify- I believe in paying your debts. I pay mine (40K for my Masters) and I benefited greatly from my education. Some people arent so lucky but it beats being on welfare because you cant get a job due to no education/skillset/experience. Had I been given the knowledge (guidance counselor didnt care less either) I would have went the cheaper route. My contribution is telling all college age family/friends thier options.
Here is really a shocker.
Guess which company is tops in the USA? Wal Mart.....a place for poor shoppers.
Wow, some dynamic country when the best product we provide is a place for the poor.
Actually, soon, medicine won't be rewarding as health care costs will preclude physicians from making high dollars as folks won't be able to pay them, even afford that monthly premium for high deductible plan that leaves a person still a big bill.
My recommendation for the young is to leave the USA , seek another country. The USA has degraded in most areas. Healthcare is ranked 37th and falling, education is not top ten in the world and US standard of living is no longer a top ten rank.
really?? someone paid my bill for college? for some reason i have not received that money yet and the 30k has come out of my account that is without intrest i paid up front.
any way since someone else is paying please send that money my way
You want to tax the money I make working, to pay for services of those who are not working, and then make me look bad because I have difficulty paying the student loans that I needed to pay for the schooling that got me here?
Do me a favor, vote to reduce my income taxes, let me keep more of the money that I earn, and I will have no problem paying my own bills. Trust me. You don't have to forgive any of my student loan debt.
I'm not skirting my responsibilities; I'm just sick of paying for everyone who has opted out of their personal responsibilities, which is making it more difficult for me to pay mine... and I'm wise enough and strong enough to fight back against this faulty mindset.
You see folks, the right wing does not value education. You can understand this by listening to them, their beliefs (erroneous) as they have a child's view of economics, science and history. Rush Limbaugh is the most educated right winger - with his GED in hand.
Most right wingers are of two classes: rich and educated and the red neck lap dogs yelling about Nazis, the anti Christ, socialism, guns, abortion and the rebel flag.
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