Carrying student loans can be a source of great anxiety, and they are a debt that you are not shouldering alone. A February 2018 report released by the Federal Reserve Bank of New York found that outstanding student loan debt as of December 31, 2017 was a whopping $1.38 trillion.
One of the problems with student loans is that they are not easy to get rid of, even if you have severe financial hardship. At the same time, student loans typically have relatively high-interest rates, which means that if you’re starting an entry-level job out of school, you may not earn enough to cover your payments – and still have enough to live on. For student loans from the government for undergraduate or graduate students, interest rates tend to be between almost 4.5% and 7%, depending on the type of loan and education you’re getting.
Despite concern that the provision would be removed in 2017’s tax reform, the IRS still allows taxpayers to deduct up to $2,500 or the total of interest payments each year, depending on which is less, one of the few sources of relief to take advantage of now while paying off your debt.
But even with these small savings, student loans can keep you from achieving your dream of homeownership, or even make it hard to plan for future education for your children. If you’re ready to start paying off student loan debt and relieving your burden, it’s time to find the right help.
How To Pay Off Student Loan Debt With A Consolidation Loan
Whether you graduated from a two-year or four-year school, you have multiple loans, even if you think of them as all the same. You may have all government loans or some private loans. Unfortunately, this can make it easy to miss a payment, forget to check a balance, and generally, just make it harder on you to stay up-to-date on your debt – and the actions you’re taking to reduce it.
Instead, consider using consolidation loans to pay off student loan debt. You’ll bundle all of your loans in one place, making it easier to keep track of your debt and ideally, reducing your interest rate along the way. To get started, you’ll want to gather together all applicable information for each outstanding student loan, including interest rates, repayment calendars, and lender info. From there, you can start to see what path makes the most sense for consolidating your debt.
You only have federal loans: With just federal loans, you can consolidate your loans into one bill, and you won’t need to have a good credit score to do so. A Federal Direct Consolidation Loan can help you get one monthly payment going forward, and it may even be slightly less than it was before. However, federal loan consolidation can end up extending your repayment period, particularly if you are looking to reduce your monthly payments with a lower rate, meaning you may end up spending more over the long run than intended. However, federal loan consolidation is also completely free, which makes it easy to get started now.
You have private and federal loans: While the government won’t include any private loans in direct consolidation loans, you can still get all of your debt in the same place by refinancing them. You’ll need to have a good credit score to qualify with a lender, and you’ll be relinquishing the government protections related to any federal loans as your new loan will be private. However, getting all of your bills in one place can help you make your payments more manageable, and you may even find that you can get a better interest rate with a private lender, dropping your overall costs.
How To Pay Off Student Loan Debt With Debt Forgiveness Programs
In some cases, you may be able to have part of your overall loan debt forgiven if you qualify. However, for most people, the specific circumstances needed to qualify won’t apply.
The U.S. Department of Education is the only entity that can permissibly forgive your debt, so you’ll need to apply directly if you think any of the programs are relevant to your situation. For most of these programs, you’ll need to consolidate your loans into a Federal Direct Consolidation Loan first to make qualifying payments.
Public Service Loan Forgiveness (PSLF): If you work full-time for a qualifying nonprofit employer engaged in public service, you may be eligible to have the remainder of your loan balance forgiven after 120 months of qualifying payments. PSLF is only for Direct Loans issued by the government.
Teacher Loan Forgiveness: Teachers who are employed in a low-income school or service agency can apply to have up to $17,500 of student loan balances discharged after five years at the school. Teachers can have both Direct Loans and Federal Stafford Loan funds forgiven in this program.
Total and Permanent Disability Discharge: If you have a complete and permanent disability, you may be able to have the bulk of your student loans forgiven. However, you’ll need to go through a qualifying period where your disability and inability to work going forward is verified.
Closed School Discharge: If you are attending a school and it closes while you are enrolled, you are eligible to have 100% of your student loans discharged.
How To Sniff Out Student Loan Repayment Scams
With student loan debt being such a prevalent problem in the U.S., the federal government advises about scammers and illegitimate companies who will take advantage of your debt situation. Typically, debtholders receive unsolicited calls or letters promising debt relief, often presented as time-limited offers or as though they are coming from the government.
However, should you get caught by one of these scammers, they’ll usually say they are going to charge you a fee to wipe out existing debt. The Department of Education does not charge any fees for help with student loans, so even if someone on the other end of the phone tells you they are affiliated with the government, if they’re asking for a fee, they’re not. To help combat the problem of student loan relief fraud, the Department of Education has a running list of companies that are prohibited from participating in debt relief services.
To protect yourself from any scams, be on the lookout for these red flags:
- You’re asked to pay a fee, whether upfront or monthly
- They tell you the offer is time-limited
- They promise to cancel your loan or get it entirely forgiven
- They ask for your Federal Student Aid (FSA) ID
If you think you’ve been contacted by a fraudulent company, make sure you change any IDs or personal information you provided, immediately cancel any payments to that company, and file a complaint.
Paying Off Student Loan Debt The Right Way: Which Path Should You Take?
No two borrowers have the same situation, which means your path to paying off student loan debt is one you have to plan for independently. If you have great credit, a stable income, and the ability to qualify with a private lender, a debt consolidation loan that allows you to refinance your private and federal loans can get you lower payments and less stress. When you consolidate your student loans into a new private loan, you can also include any other outstanding debt you hold, so in a way, you’re using student loans to pay off debt – but at a lower interest rate than you would if you maintained your original loan structure.
However, consolidating federal student loans through the government program is an excellent choice for borrowers who don’t have good credit, and the process can be completed in minutes for free. Not to mention, if you do think you qualify for a federally-sponsored debt forgiveness plan, you’ll need to have your loans already consolidated through this program.
Your finances, income, and needs will ultimately help you determine the right steps to take to get rid of your student loans. Be sure to prepare for any loan applications by checking your credit, and start boosting your savings with a lower interest rate and better terms going forward.