Q If So Many Students Are Struggling To Repay Their Loans How Much Are Taxpayers On The Hook For
A. For many years, federal budget forecasters expected the student loan program to earn a profituntil recently. In its latest estimates, the Congressional Budget Office expects the program to cost taxpayers $31 billion for new loans issued over the next decades. And that figure uses an arcane and unrealistic accounting method required by federal law. Using an accounting method that calculates the subsidy to borrowers from getting loans from the government at rates well below those theyd be charged in the private sector, the cost to taxpayers is $307 billion. And that largely excludes the cumulative losses already anticipated on loans issued prior to 2019.
Pay Off Your Loans Faster
Take extra income you might have and make additional payments toward your student loans. This will pay off your loans quicker, which lowers the total interest you pay over time.
No, this technically wont lower your interest rate, but if the goal is to save money, this is an effective approach. The longer you allow interest to accrue, the more interest you will end up paying. Its a strategy you can use for both federal and private student loans if you have the extra money to attack student debt.
The average borrower would save nearly $2,000 and pay their debt two years earlier with an additional $70 payment each month.
Prioritize high-interest debt if you have multiple student loans with different rates. Use the extra money to pay off the loan with the highest interest rate first. Then move on to the loan with the next highest rate.
Income Contingent Repayment Plan
If you have a federal Direct Loan, you can opt for this plan which calculates your payment amount based on your income. Under this plan, your monthly payment is the lesser of
- 20% of your discretionary income, or
- the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
If you haven’t paid off your loan after 25 years, the government will forgive the remaining balance.
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Start A Side Business
If a part-time job with strict hours isnt a good fit for your schedule, consider starting a side hustle. Side hustles can include anything from delivering food with Uber Eats to designing logos for small businesses.
Ideally, you should find a side hustle that corresponds with your skills and interests. If youre excellent at French, try tutoring French students. If youre a good web developer, list your services on sites like Fiverr or Upwork. Youll earn more by utilizing a specialized skill instead of doing something basic like driving for Lyft.
Find A Cheaper College
One of the easiest ways that you can reduce the amount of student loan debt that you have is to go to a school thats less expensive.
Look at different colleges and universities in your area and see which ones are going to be the least expensive. Make sure you talk about the loans that are going to be required for different schools and that youre not taking out more in loans than you should expect to make in your first year.
You could find a number of different options for rates, different scholarship and financial aid options and a whole lot more.
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Review The Grace Period
There may be a grace period for government loans. This can vary by province or federally, depending on the loan you have. In addition, there is the possibility to extend the grace period if you arent making enough money to make the minimum payment. Knowing exactly when you need to start making payments is a great way to set yourself up financially for the year.
Additional Ways Loans May Be Forgiven
There are two other instances in which your loans may be forgiven without making a payment:
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Total and permanent disability discharge of both private and federal student loans is possible if you become disabled and can no longer work.
-
Death discharge forgives all federal and private student loans borrowed since Nov. 20, 2018.
If you are in a dire student loan situation, such as default, one additional option to consider is settling your debt for less than you owe. If youre successful, it wont get rid of all your debt, but it can help ease the burden.
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Submit Your Fafsa As Early As Possible
One of the easiest ways to reduce your student loan needs is by submitting the FAFSA early. The sooner you complete the FAFSA, the more likely youll qualify for limited types of financial aid, including work-study, grants, and scholarships.
The FAFSA is available by October 1 of the year before you enroll. Be mindful of those dates and try to gather the necessary documents before the FAFSA comes out.
Launch A Side Business
I knew a girl in college who funded her education by flipping antiques and collectibles. She and her boyfriend had experience and an eye for value and would pick up items for a fraction of their real value at yard sales and estate sales. They would then sell them on eBay or elsewhere online for a tidy profit, perhaps after some minor cleanup.
Take the same approach as if you were starting a side business while working a full-time job. Pursue business ideas that require little or no startup capital, such as an online business.
If you need some ideas to kick-start your creative process, read our article on part-time business ideas.
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Understand The Repayment Terms
Different types of loans have different repayment terms. When you understand the terms of your loan you can plan out a repayment term that allows you to pay back as quickly as you can, taking into consideration other sources of funds. If you are working while in college, keeping aside some money to repay the student loan every month can help you lower your overall debt considerably.
Target High Interest Loans For Repayment
Target the highest-rate loans for quicker repayment. There are no prepayment penalties on federal and private student loans. So, after making all of the required payments, make an extra payment and ask the lender to apply it as a payment to principal on the loan with the highest interest rate, not to a future loan payment.
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Take Advantage Of The Final Days Of Your 0% Interest Rate
Federal student loan payments were set to resume in February, following a nearly two-year-long freeze. But borrowers got some welcome news before the holidays: the payment pause and interest waiver will last three months longer. This means that any amount you pay before May will go further in decreasing your debt than it would later in the year, when it will get eaten up by interest.
A 0% interest opportunity rarely comes along, says Dan Rooker, a financial planner and certified student loan professional.
How much you can knock off your total debt depends, of course, on how much you owe and what your interest rate will be after the pandemic-era relief ends in May.
But, for the sake of an example, lets say you owe $40,000 with a 6% interest rate, and youre on track to pay that off in 5 years. If you make a one-time $4,000 payment and then return to making the same monthly payments of $773 after the forbearance period ends, youll pay off your debt 6 months faster. Perhaps more motivating? Youll save $1,300 in interest.
Youll be swimming against the current again starting in May, Rooker notes.
These Programs Can Help You Wipe Out Student Debt
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A Tea Reader: Living Life One Cup at a Time
How can people get rid of their student loan debtand, specifically, when is loan forgiveness an option? We don’t need another statistic to tell us how deep in student loan debt U.S. college graduates are. Total debt and average debt figures don’t mean much, except to say that if the sums you owe keep you up at night, you’re in good company. What really matters is finding a solution.
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Fill Out Your Fafsa As Soon As Possible
Even if you think you or your parents earn too much money to qualify for need-based financial aid, it doesnt hurt to fill out the Free Application for Federal Student Aid .
You can complete the application before youve decided which school to attend. In fact, completing it before you make your decision helps you weigh the aid different schools offer.
You submit your FAFSA application online through the governments Federal Student Aid website. Enrollment opens on Oct. 1 each year and closes at midnight on June 30.
Word to the wise: Submit yours as close to Oct. 1 as possible. According to College Ave, students who submit within the first three months of the acceptance period get twice as many grant offers.
A few days or weeks after you submit your FAFSA, you receive whats called a student aid report . Your SAR informs you whether you qualify for a federal grant, such as the Pell Grant, or if you qualify for work-study and other federal aid programs. It doesnt tell you the actual amount of aid youre eligible for, as the school determines that.
Some schools have more funding than others, and that funding is often limited. The sooner you file your FAFSA, the sooner the schools you apply to are able to tell you which type of aid package you qualify for.
If you wait too long to file, all the grants and work-study funding available at your top-choice schools may no longer be available.
Pay As You Earn Repayment Plan
Under this plan, your monthly payments are 10% of your discretionary income, but never more than the ten-year standard repayment plan amount.
The following types of loans are eligible for this repayment plan:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS loans made to students, and
- Direct Consolidation Loans that do not include PLUS loans made to parents.
If you haven’t repaid your loan in full after 20 years, the rest is forgiven.
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Include Payments In Your Budget
Build your student debt payments into your budget and make payments that are larger than the minimum payments. You can also speak with your financial institution about setting up automatic payments.
When planning your budget and automatic payments, make sure you know when your payments are due. Remember that if you have more than one loan or line of credit, you may have more than one payment due date.
Go To College Just To Meet And Marry A Rich Spouse
Thats what women supposedly did in the old days. Marrying into wealth would probably eliminate your debts, but we do not advise it as a financial plan today.
Youll be much better off using the first seven strategies. Then you can escape student debt prison and really get on with your life.
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Get Help From The State
Where you live can have a big impact on your student loan balance. Some states offer student loan repayment assistance to attract professionals to the area. For example, North Dakota has a program that gives STEM professionals up to $6,000 in repayment assistance.
Visit your states education department website to see if similar programs are offered in your area.
Other Ways To Reduce Tuition Costs
Whether or not you go the community college route , there are other things you can do to cut tuition costs. Not all of these are available everywhere or apply to everyone, but there are probably at least a few that most people will be able to take advantage of.
- Dual enrollment, where students take college courses for credit while still in high school
- Tuition waivers, often available for public service employees and sometimes their children
- Sibling discounts, possibly available to students with a sibling already at the college if you ask for it
- Tuition reimbursement, where your employer pays for all or a portion of your college education
- Online courses, which are much less expensive than equivalent courses taken at school and can more easily fit into a work schedule
- Tuition-free programs, available in some states for four-year-degree seekers and may require on-campus employment as an offset
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Other Repayment Plans For Student Loan Debt
Other types of repayment plans include a standard repayment plan, a graduated repayment plan, and an extended repayment plan.
What Happens if I Default on My Student Loans?
Defaulting on your federal student loans can lead to serious consequences, like tax refund offsets and federal benefits intercepts, wage garnishment, and the loss of eligibility for deferment, repayment plans, and probably forbearance.
Score Free Housing Through Kiddie Condo House Hacking
A more advanced technique, this one requires your parents help.
The premise is simple enough: You and your parents buy a house or large apartment with several bedrooms and rent out the rooms to your friends. The rent ideally covers the mortgage payment plus some maintenance costs, scoring you free housing.
When you graduate, you can either keep it as a rental property or sell it and walk away with a nice paycheck from the equity built over your college years.
You and your parents finance the property with a kiddie condo loan in which you satisfy the occupancy requirement rather than your parents. But the lender bases it on their income and assets.
For more ideas, read our article on house hacking techniques.
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Pay Off Student Loan Interest During College
Many lenders allow students to make payments while theyre enrolled. If you can afford to put money toward your loans while still in school, then less interest will accrue and be added to the principal.
One strategy is to get a part-time job and put that money to put toward your student loans. Even paying a small amount every month will help you pay less in total interest.
Use Refinancing To Your Advantage
Refinancing your student loans wont automatically bring down your student loan debt. But it can bring down your repayment total and cut down your repayment time.
When comparing student loan refinance offers, look for those that have lower interest rates and shorter terms than you currently have. This will help you cut the total costs most while paying off your loan the fastest. Refinancing with this strategy will likely increase your monthly payment amount. But if it doesnt, commit to paying at least what you paid previously for an even more significant benefit.
For example, if you refinanced your $30,000, 10-year student loan with 5% interest to a seven-year loan with 4% interest, your payments would be about $92 higher each month. But youd pay off your loan about three years faster while saving a little more than $3,700.
To get the best deal to refinance your student loan, you need a stable income, a credit score in the high 600s and a debt-to-income ratio of 50% or better. In addition, you may get an even better offer if you add a qualified co-signer to your application. But before doing so, make sure you and your co-signer understand the implications and agree on the terms.
You will lose federal benefits if you refinance your federal student loans. Before doing so, be confident in your employment status and ability to repay the new bill.
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Strategies To Lower Your Student Loan Payments
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In a Nutshell
If youâre struggling to pay off student loan debt, you may want to look into lowering your student loan payment. Getting a lower monthly payment can help tremendously, and there are many options to do this. Some strategies for achieving this include signing up for an income-driven, graduated, or extended repayment plan enrolling in autopay refinancing your student loans consolidating your federal student loans applying for deferment or forbearance and requesting a temporary payment decrease or deferral if you have a private student loan. The best option for you depends on your financial goals and the type of loans you have. This article will go into detail about each of them.
Written bythe Upsolve Team. Reviewed byAttorney Andrea Wimmer
The best option for you depends on your financial goals and the type of loans you have. Here are eight strategies you may be able to use to lower your student loan payments.
Apply For Scholarships & Grants
Applying for scholarships and grants can reduce your dependence on student loans. There are many ways to get a scholarship, including applying directly through the college and external websites like Fastweb, GoingMerry, and Bold.org.
Keep applying for scholarships throughout your college career, even when youre a senior. There are many awards available for upper-level students.
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