Student Loan Debt Solutions, Top Free Solution
Student loan debt management can be challenging. Here are some helpful tips and advice that may help you to better manage your loans and expand your finances.
An advanced degree should provide access to middle class employment; unfortunately, for millions of people it has instead become an impediment that limits economic opportunities. Here are some solutions.
Repayment Options
Student loan debt can be complex and there are multiple repayment plans available to you. The ideal approach would allow for timely loan payments each month without defaulting – defaulting can damage your credit score and make borrowing harder in future. Additional repayment strategies might include making more than minimum monthly payments or refinancing loans altogether or exploring forgiveness programs.
Federal loans feature a standard repayment period of 10 years with graduated payment plans that start out low and gradually increase over time. Other payment plans available to borrowers may include extended and income-driven payment schemes.
Income-driven repayment options enable borrowers to keep monthly payments low by basing them on a percentage of their discretionary income as defined by the Department of Education. Such plans include IBR, PAYE, REPAYE and Income Contingent Repayment (ICR).
These plans require you to annually recertify your income, with payments then adjusted based on it and family size. After making payments on these plans for 20 or more years, any outstanding balance may be forgiven – though any such forgiveness is subject to tax.
Student Loan Forgiveness Programs
Student loan forgiveness programs offer many students access to lower monthly payments, shorten their debt terms and provide tax relief. Programs vary by loan type, repayment plan, career field and financial or personal situation – for instance there are programs specifically available to teachers that forgive loans based on teaching subject and years served; as well as available for public service workers, medical professionals, attorneys and military veterans.
AmeriCorps, Shared Harvest Fund or Peace Corps members may qualify to have some or all of their federal student loans forgiven after two years of full-time service. Registered nurses, advanced practice registered nurses and nurse faculty also may qualify through the Health Resources and Services Administration NURSE Corps Loan Repayment Program for loan forgiveness if they serve in high-need nursing areas for two years.
Borrowers who opted for income-driven repayment plans have taken advantage of the COVID-19 payment pause which began March 2020, yet when this period ends they must recertify their income and resume payments according to their new income levels – this may cause their monthly payments to increase depending on this factor.
Consolidation
Navigating multiple student loans with different servicers can be complex. Missed payments can damage your credit and make future borrowing more challenging; consolidating can make things simpler by consolidating all your loans into one payment that goes straight to one lender.
The Direct Loan Consolidation program offers an affordable way for students to consolidate federal student loans into one, larger loan with extended payments and interest over time. Consolidation may reduce monthly payments while simultaneously increasing total interest paid.
Default on federal loans can damage your credit and make borrowing money impossible in the future; consolidating may provide access to income-driven repayment plans if consolidating Perkins or FFEL loans.
However, consolidation should be used with caution as it will reset any eligibility clocks for forgiveness programs like Public Service Loan Forgiveness. Therefore, consolidation may not be suitable as it could reduce eligibility.
Refinancing
Refinancing can allow you to modify the terms of your loan and may help lower interest rates or monthly payments, though you should carefully consider their impact on your overall costs; for instance, extending your loan term might actually increase its total cost over time.
Refinancing can help consolidate both federal and private student loans into one monthly payment, though be aware that any benefits from federal programs like income-driven repayment plans or Public Service Loan Forgiveness would no longer apply if you refinanced your student loans.
If you’re ready to refinance, be sure to research lenders and use a calculator to estimate how much money you could potentially save. Also ensure you make all payments on old loans on time as missing any payments could damage your credit rating and cause them to reenter repayment cycles. It is also important to remember that refinancing might require cosigning arrangements in case your ability to repay is compromised in any way.
Income-Driven Repayment Plans
The Obama administration recently unveiled an income-driven repayment plan that could lower monthly payments for many undergraduate borrowers. Under this scheme, monthly payments would be determined based on a percentage of discretionary income; any remaining debt would be erased after 20 years of on-time payments have been completed.
This plan, which will replace IBR, PAYE and REPAYE plans, offers payments that are half what borrowers currently pay with those plans. Furthermore, it allows borrowers to stay in it even if their income rises as the new plan doesn’t require proof of partial financial hardship like its counterpart does.
While lower loan repayments will help borrowers, it won’t solve the larger issue of how expensive college costs are. Most cost savings from loan refinancing will come from not paying interest on some loans rather than reduced borrowing amounts – and as these savings won’t target lower income families like Pell Grants do they won’t help to lower overall costs either.
Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) forgives the remaining balance on Direct Federal Student Loans when borrowers make 120 qualifying payments while working full-time for government or non-profit employers, such as teachers, firefighters, police officers, nurses, first responders, public interest lawyers or military members. PSLF benefits can be found among teachers, firefighters, police officers, nurses first responders as well as public interest lawyers as well as military members among many other professions.
The Biden administration has made several changes over time to make it easier for borrowers to qualify for PSLF, including an 11-month fix that allowed borrowers to count payments that would otherwise not have qualified due to repayment plans or technicalities; this offer formally expired on October 31, 2022.
To qualify for PSLF, borrowers must be on an income-driven repayment plan that requires them to make monthly payments equaling at least 50 percent of their discretionary income. This applies even to borrowers who have changed repayment plans multiple times or are in deferment, forbearance or grace period – unlike some forgiveness programs which could potentially generate taxable income for some borrowers.
Deferment and Forbearance
Student deferment and forbearance options provide temporary relief when making loan payments are difficult; however, you should remember these are just temporary solutions and you must resume payments when your financial circumstances improve.
Deferment is an option available to qualifying borrowers that allows them to temporarily stop making student loan payments and, in certain instances, suspend interest accumulation on subsidized loans. It may be applicable if you’re attending at least half-time and face financial hardship; similarly forbearance provides relief if deferment doesn’t apply – generally lasting no more than 12 months with extensions available monthly.
Private lenders are not required to offer forbearance programs, though some may provide them. Be sure to discuss what options may be available with your lender as forbearance can provide an effective alternative to default that protects both your credit rating and prevents damage; default reports to national credit bureaus could drastically lower it.
Management and Budgeting
Higher education costs have been rising faster than inflation for decades, making it increasingly difficult for students to attend college without borrowing heavily. This situation has become an economic and individual crisis alike; servicing this debt has limited spending in other areas like homes, cars and consumer goods.
At the heart of it all lies misaligning incentives between students, schools and lenders; when borrowers incur substantial debt amounts they benefit financially while students bear most of the costs; this is why many advocate for loan forgiveness programs.
There are various entities working to address this problem, such as the Rolling Jubilee Fund which raises money to purchase student debt and cancel it completely, AmeriCorps connecting volunteers with nonprofits or employers in exchange for a stipend that goes toward paying down student loans, and debt consolidation which combines multiple debts into one monthly payment plan.