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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If your degree was associated with Math, Science, medicine or Engineering you can get a job. So let me see, you got a degree in what ??
The solution to High college costs is a requirement for Electronic Text Books that cost a max of $30 (hard copies cost about $200 each, and are a real rip-off). Limit the number of Administrative staff paid more than $150K per year to one per 10K students with a salary cap of $200K. Cap Professors pay at $180K and require a minimum teaching load of 5 courses per day each semester.
Cap head coach pay at $200K and assistant coaches at $150K. Admit only those students who carry 16 hours and carry a B- or higher average and require all others to attend JC or a trade school.
So you borrowed $80,000 to pay for college because you believed you deserved to have a degree, even though you didn't have the money to pay for it. Now college is behind you and you deserve to have a nice big house immediately upon landing your first job. And you deserve to have an expensive car in your driveway to reflect what a success you have become. And if the debt you have accumulating becomes an inconvenience, you demand that the government stop helping Wall Street and help you instead. Good luck with that mentality.
Start at a community college and work at the same time. Pay as you go. Take the number of classes you have the cash to pay for. Going into debt should not even be an option. Do you think the banker is trying to do you a favor? Don't allow the financial sector to make you look stupid.
Really, I'm a free loader because I support loan forgiveness?
We aren't talking about credit card debt here, people paying for new shoes and vacations they can't afford, which benefits no one but themselves...we are talking about people who took out loans for an education.
A poor economy isn't helping, to be sure; I was laid off in 2004 by one company, and again in 2010 during the moratorium. Yet, even in southwest Louisiana, I've managed to obtain good paying jobs commensurate with my MBA.
However, if 35% of my salary wasn't going to pay for all the social services going to everyone who chose NOT to get an education, then I'd have more of my hard earned money to pay back my school loans.
During those layoffs, do you think the $234/week in unemployment I received helped me pay my bills? All the years I've worked, I've paid social security, federal and state taxes, etc., yet I couldn't afford to purchase any worthwhile health insurance.
In the meantime, banks who knowingly lent money to high risk borrowers get BILLIONS in BAILOUT? CEOs and COOSs getting millions while their companies are failing? It's a joke.
I've requested deferment and forebearance and elongated my payback terms. I've driven the same car for 10 years. I still live paycheck to paycheck and cannot get ahead.
Enough is enough. When is the middle class going to get bailed out? We are the ones keeping the economy afloat. Put money back in the hands of the people who are helping themselves.
I don't know the stats, but I'd be willing to bet that it's not those of us who invested in our education that are the predominant freeloaders in society. Rather, we are the ones keeping our economy afloat. Something has to give.
Ya, well if the government wouldn't have handed out these loans
so easily to all of the kids who couldn't afford college, they wouldn't
have to be paying all of these millions back to the govt. with this
terrible interest rate attached to them. It was a big ploy by our govt.
to get these kids entrapped in easy to aquire loans. But so many of
our kids are defaulting on them that it backfired on our spending as
a govt. and has thrown our young working generation of people into
instant debt, so they don't even have the good credit or down payment
to buy a home. . So sad to have seen our govt. dube our children this way!
So it all continues as a vicious cycle spiraling our economy downward!
I can write a much shorter article. "Wipe Out Your Student Loan Debt"
Pay it back!!
Isn't it wonderful that we have a small amount of children(I call them children because they do not understand that they were given the privledge of going to college with the taxpayers paying their bill. I wonder when they go out in the world if they also believe they don't have to pay their taxes on their property or pay any other bills because they don't believe they owe that obligation. I know it can be tought but get out their take any job until the right comes along show that you understand that you owe the money it is not a free ride. My kids all have college loans and our still looking for their ideal job but until they find it they are paying off the loans as best they can. For the kid that moved to Canada good ridence to bad rubbish our country is better off without you. Come on kids grow up and face your responsiblities you are adults.
it is amusing to see some of the older generation on here all indignant on their high horses when they got the same education at the same school i attended for $1500 a semester including room and board. meanwhile I have to pay 25k plus R&B.
the conventional wisdon is that my degree will increase my earning power but why is the high school grad or 2 year degree holder making the same starting salary i am?
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