Student Debt

The generations just graduating college, or having recently graduated from college, are quickly realizing that the investment they made into their future at 18 is way higher and more difficult to pay off than anticipated. To many, the future seems bleak with years of payments ahead of them and possibly having to pay thousands more than their original loan amount due to high interest rates. However, it doesn’t have to be this way, there are options and ways to make repaying loans as pain free as possible.

Federal Loans

The easiest way to reduce the rate on student loans is to set up direct debit allowing funds to be automatically drawn from an account each month. Not all, but many loan servicers will reduce the rate of the loan, which may help borrowers pay less in the long run by reducing the accrued interest a portion. 

Another option is to pay more than the principal amount, if the borrower is capable of doing so. This results in paying off the loan faster and paying less overtime since there will be less time to accrue interest and a smaller debt to apply interest to. This option is ideal for loans with the highest interest rate since those are the ones that will build up the most interest over time. Pursuing loan consolidation is another option. A consolidation loan combines multiple federal loans resulting in a single payment instead of multiple, but this does not often lead to a lower interest rate. 

Worth considering is Public Service Loan Forgiveness. This is a program for qualifying jobs wherein debts will be forgiven once 120 consecutive payments are made. Whatever the remaining balance is will no longer need to be repaid. Borrowers should be sure to check with their loan servicer and employer to see if they qualify.

Private Loans

As with federal loans, the easiest way to save some money and reduce interest rates is automatic payments. A lower interest rate is not always guaranteed (it will depend on the lender), but automatic payments will at least ensure you don’t default on the loan.

Unlike federal loans, private loans can be consolidated or refinanced at a much lower interest rate. Borrowers can seek these options directly from their lenders and look into options their bank or credit union offers.

Repayment Plans

Many loan servicers offer altered payment plans to help students pay off their debt when they cannot afford the full principal amount. The big drawback to these plans is that the interest rate does not change and still accrues normally, but the life of the loan has been extended. This can result in paying a great deal more than the original balance of the loan, mostly in interest charges.

Repayment plans are calculated based on the borrower’s income and family size. There are several types of plans that borrowers can take advantage of. 

  1. Income-Based Repayment (IBR): This is the most common form of repayment plan. IBRs have “payment caps based on income and family size” according to IBRinfo. This cap is 15% of your earning after the poverty level. They also allow for loan forgiveness after 25 years of payments if there is any debt remaining. The IBR plan only applies to Direct or FFEL loans and most federal student loans.  

  2. Pay as You Earn (PAYE): The PAYE plan also has payment caps based on income and family size and will forgive remaining debt after 20 years. This option is only available to those who have “taken out their first loan after September 30, 2007 and at least one after September 30, 2011.” Borrowers are eligible for this loan if their payment matches or exceeds 10% of earnings above the poverty level. 

  3. Revised Pay as You Earn (REPAYE): This is a revised PAYE plan that was put into place in 2015. REPAYE is open to borrowers who took out loans before October 1, 2011. Like the PAYE plan, the REPAYE is capped at 10% of the borrower’s discretionary income. All unpaid debt will be forgiven after 20 years of payments. 

Forgiveness

Along with payment plans, there are forgiveness plans.

  1. Public Service Loan Forgiveness (PSLF): This is probably the most well known out of all the forgiveness options. With PSLF, 100% of the borrower’s remaining loan balance is forgiven after 120 payments are made on a qualifying repayment plan. According to Student Loan Hero, “To qualify, you must be a full-time employee at a federal, state or local government agency or at a 501(c)(3)-designated organization. Religious-based nonprofits are excluded.”

  1. Teacher Loan Forgiveness (TLF): This program provides debt relief after five years of consecutive payments to teachers who work in qualifying schools. The loans eligible for this are: subsidized and unsubsidized direct and Stafford loans. Unlike PSLF, TLF does not forgive 100% of debts. Elementary school teachers are often awarded around $5,000 and secondary school teachers (math, science, or special education) stand to receive up to $17,500. 

  1. Nurse Corps Loan Repayment Program (NCRP): This option is available for nurses working in underserved communities. With this program, nurses can qualify for up to 60% of their loans to be paid after two years of service, working a third year could result in additional 25% forgiveness. There are also state repayment programs available.

  2. Assistance for doctors and other healthcare professionals:

    1. National Health Service Corps (NHSC): This program awards up to $50,000 to professionals committed to working two years at an eligible site as: primary care doctors, dentist, or mental/behavioral health clinicians.

    2. Students to Service: This involves commitment to an approved site for three years after graduation and can qualify students for $120,000.

    3. Indian Health Services (IHS): This requires a two year commitment to practicing in American Indian or Alaskan Native communities. The award amounts to $40,000.

    4. National Institutes of Health (NIH): This requires two years of commitment to research at a qualifying nonprofit. The program pays up to $50,000 for each year the award is received.

  1. Assistance for Lawyers

    1. Department of Justice (DoJ) Repayment Program: Borrowers can qualify for up to $60,000 after three years of service with the DoJ. 

    2. John R. Justice Program: $10,000 to $60,000 in aid for public defenders.

    3. Herbert S. Garten Program: $5,600 awarded to recipients working at qualifying locations.

    4. State sponsored programs

  1. Military: All branches offer loan repayment programs, the amount forgiven and terms differ between the branches. 

Conclusion

There are a number of ways to help borrowers pay off their student loans in a way that works for them. This can mean aggressively paying down debts, starting with the highest interest rate, or looking into consolidation and repayment options. Whatever the situation, there is help out there for everyone.




References

https://www.consumerfinance.gov/paying-for-college/repay-student-debt/#non-federal:no:yes:no

https://www.forbes.com/sites/zackfriedman/2020/01/22/pay-off-student-loan-debt/#643f6a7318ab

https://studentloanhero.com/featured/repaye-revised-pay-as-you-earn-program-guide/

https://studentloanhero.com/featured/the-complete-list-of-student-loan-forgiveness-programs/#pslf

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