Forgiveness Programs for Student Loan Debt
Originally posted on The College Puzzle
These days, the mere mention of going to college causes a knee-jerk reaction: to become overwhelmed by the student debt that will most likely accumulate as you go through your degree program. Aside from going to a career school or community college, a higher education comes with an incredibly steep price; one that can make college quite cost preclusive to many. Going to college comes with many choices: where to go, what to study, and how the heck to pay for it. Student loans—and the debt crisis that tags along with them—don’t seem to be going away anytime soon. Here’s how to deal.
FACTS ABOUT STUDENT LOANS
$1.4 trillion. 44 million people. Those numbers represent the amount of student loans in the U.S, and how many borrowers owe back that debt. There’s a huge problem with that, especially when it surpasses America’s collective credit card debt by over $600 billion. Let’s break down the student loan debt crisis into numbers:
- As of 2016, the average student debt is over $37K
- Five percent owe well over $100K in student loans, and some total over $200K
- Over 70 percent of American students graduate with student loans
- Fifty nine percent of millennials have no clue when they’ll be able to pay off their loans
- One in four borrowers (11.2 percent) has defaulted on his or her student loans
- The top five states with the highest average student loan debts are New Hampshire ($36K+), Pennsylvania ($35K), Connecticut ($35K), Delaware ($34K), Rhode Island ($33K)
- The top three states with the highest student loans per capita are Michigan, New York, and Pennsylvania
- The largest concentration of debt is between $10K-$25K, with over 12.4 million students owing
HOW TO BALANCE YOUR STUDENT LOANS WHILE STILL A STUDENT
Colleges and universities won’t be lowering their costs, which means students are going to have to learn to live with, and balance, their loans. For millions of students, it’s just a fact of life and part of their college rite of passage. However, there are quite a few ways students can lower their debt while they are still in college.
- Think about community college: No, not instead of university—think about taking some of the prerequisites through a community college. You’ll get basic credits out of the way in a much less expensive environment. It could translate to hundreds of, if not a few thousand, dollars saved before heading off to the university.
- Work-study program: Federal work-study programs are a form of financial aid that can help students alleviate the cost of college by working on or off campus at a designated job. Students in financial need are eligible for this type of program, and the money does not have to be paid back.
- Federal loans first: Generally speaking, federal loans have lower interest rates than private loans. So, when seeking out loans, look to the ones offered by the federal government first.
- Make payments on the interest: Usually your student debt payments aren’t expected until after you graduate from college. However, some loan companies allow for early payments to be made; it’s up to you to find that out through your loan company. If you’re permitted to, even small payments toward the loan will make a huge impact once it comes due.
- Make larger payments: If you can, consider paying a bit more each month to buy down the principal loan, much like a mortgage. Or, add a payment by sending a chunk from each paycheck twice per month. The more you pay, the quicker you pay off the student loan.
- Only borrow what you need: This one is kind of important. You may receive a reimbursement check once your school is paid off. If this happens, it’s because there was too much money, and you didn’t need it all. You are not obligated to keep this money, it will only add to the loan balance. You’re better off sending that check back to the originator. Just remember, the more you borrow, the more you have to pay back.
LEGIT WAYS TO GET YOUR STUDENT LOANS FORGIVEN
Believe it or not, there are some things you can do that will actually forgive your student loans. These programs are completely legitimate, and almost half of loan borrowers qualify for different types of loan forgiveness programs but don’t even realize it because the options were never presented to them. These programs are strictly based on federal loans; private loans don’t have forgiveness programs.
Income Driven Repayment plans are for those wanting to get the payments of their federal loan lowered. These can not be used if there is a default of any loan, or if you have a ParentPLUS loan. These are all free to apply for.
- Revised Pay As You Earn Repayment Plan (REPAYE): All loan borrowers are eligible for this plan. You pay 10 percent of your discretionary income, but the loan is forgiven after 20 years.
- Pay As You Earn Repayment Plan (PAYE): Similar in theory to REPAYE except the qualifying loans go back to 2007. You should file your taxes as “married filing separately” if you are married.
- Income-Based Repayment Plan (IBR): If you’re having financial hardship, this is the most common of the loan forgiveness programs. Loans from before July, 2014 will require payments that are not greater than 15 percent of your discretionary income. After July 2014, the loan repayment is less than 10 percent. Discretionary income is based on the size of your family plus your income taxes.
- Income-Contingent Repayment Plan (ICR Plan): Payments would be 20 percent of your discretionary income, with the loan being forgiven after 25 years. Your payments adjust with your income.
Other loan forgiveness programs:
- Volunteer work: Volunteering to work in the Peace Corps will defer your Stafford, Perkins, or Consolidation loans 15 percent per year with a max of 70 percent. One year in Americorps will pay off $4,725 of your student loan. And 1,700 hours in Volunteers in Service to America (VISTA) will give you $4,725 toward your students loans.
- Public Service Loan Forgiveness: You can take advantage of this program if you work for employers in the government sector, not-for-profits that are tax exempt under Section 510 (c)(3) of the Internal Revenue Code, and other types of not tax exempt employers, as long as they are providing certain types of public services. This program may completely forgive your loan after 120 months of repayment under one of the said types of employers.
- Teaching: If you’re a teacher working in elementary or secondary schools with predominantly low-income families, then you qualify to have part of your Perkins loan forgiven. The payment schedule for this is 15 percent the first and second years of teaching, 20 percent in the third and fourth, and 30 percent in the fifth and final year.
- Legal and medical studies: There are a variety of programs paying off part to almost the entire loan for both the medical and legal students loans. There are so many of these programs for both fields that it’s best to speak with a financial aid counselor to explore your options.
And a few more options for managing your student loans, especially if you don’t qualify for any of the above.
- Get your loans deferred: This means you’ll be allowed to temporarily stop payments on your loan for a certain amount of time, potentially without having any responsibility for the growing interest.
- Get a loan forbearance: The only difference between a deferment and forbearance is that with the forbearance, you’ll be responsible for the interest that accrues.
- Debt consolidation: There are many companies out there who will work with you to consolidate your debts, including your student loan.
Yes, the cost of college is astronomical. Unless you’re one of the lucky ones who is somehow able pay off your entire tuition, you’ll be balancing some hefty loans. Explore your options; there may be some relief available to you through student loan forgiveness programs.