Debt Movement Google Hangout: Paying Off Student Loan Debt
with Joseph Audette
Student Loan Q&A
Can a monthly student loan payments be lowered? Especially due to financial hardship?
There are several programs available, and you should always contact your loan servicer to see what might be available to you:
- Deferment postpones your loan payments on the principal (and interest for certain subsidized loans) for economic hardship, unemployment, or if you go back to school, for example, graduate school.
- Forbearance is a temporary (12 month) postponement due to illness or economic hardship. It is not automatically granted, so you have to apply, and your loans will still accrue interest during this period.
There are also additional special federal loan repayment plans that certain students qualify for:
- Standard Repayment Plan: 10 Years
- Graduated Repayment Plan: Payments are lower first and then increase every 2 years
- Extended Repayment Plan: Up to 25 years
- Income Based Repayment (IBR): Your maximum monthly payments will be 15 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply).
- Pay As You Earn: Your maximum monthly payments will be 10 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply).
You can find more information about federal repayment plans here:
- NerdScholar article: How to choose the right federal loan repayment program.
If I’m a college freshman, what’s the best / easiest way to find out what I owe and who my servicer is?
The National Student Loan Data System will have details about all of your federal loans, the servicer, loan amount, term, and APR:
- National Student Loan Data System: http://www.nslds.ed.gov
Has anyone successfully had a co-signer released from private student loans? Or is this just a myth lenders like to make you believe is possible?
Short answer: Yes. Unfortunately for each different lender they have a unique process for releasing a co-signer, and it is not always easy – you have to work for it. The best thing to do in this case is build up your credit so you have a FICO score as high (or higher) than your original co-signer. Most lenders will release a co-signer if the following conditions are met (the following is taken from cuStudentLoans):
- Minimum number of on time principal and interest payments: The borrower must demonstrate solid repayment habits by making a specified number of full loan payments once they enter normal repayment mode after graduation.
- Primary borrower has strong enough credit: Before a cosigner will be released from a loan application, generally the primary borrower must have strong enough credit to be “approved” first. This means the primary borrower would need to meet credit requirements to be approved for this loan without a cosigner. Primary borrower credit must be in good shape, and they must be earning a minimum income requirement.
- Submit a written request for release: Once the borrower meets the minimum requirements, they need to submit the request to the loan provider before the review is initiated. Lenders do not remove cosigners until the request is submitted and all credit and repayment requirements are met, so make sure to follow up with this last requirement.
My question is about loan forgiveness for people that work for the state or in education. I am aware of a $5,000 loan forgiveness for teachers that work in low-income schools. But I have heard of another option: After working for 10 years for the government/education and never missing a payment, that the government will clear, or wipe the slate clean, of all student debt. Is the ten-year forgiveness just a rumor?
- The Public Service Loan Forgiveness Program will forgive remaining debt after 10 consecutive years working in public service. Only for certain repayment programs such as Standard, IBR, or Income-contingent repayment.
- You should also be aware that to qualify for this program, you must spend 10 consecutive years in the public-sector. For example, if you take a year and work for a non-qualifying organization, and then go back to a non-profit, your “clock” will then restart.
- More information can be found on Studentaid.ed.gov
I feel like I will NEVER be out from under my student loans. I went back to school at 50 and have yet to begin earning a living in my new chosen profession. I am paying a reduced amount, as I cannot afford the full loan payment. I’ll be paying until I’m 80 at this rate. What can I do? I know others that have become perpetual students to keep their loans deferred but that seems self-defeating in the end. At some point you can’t go to school anymore and then what? The interest will have been piling up all that time. Currently there is not way to alleviate the burden legally. Are there any other options, such as bankruptcy (not that I want to go that route) or some other way to reduce the debt/payments without carrying this around until I’m too old to manage it?
This is an issue impacting many Americans. Education debt for those over 60 has been the fastest growing college debt of any age group, due to older Americans returning to school and parents taking out loans for their children. Unfortunately, right now student loans are not dischargeable in bankruptcy, but there are a few options for you and potential solutions in the near future:
- Senator Dick Durbin, as well as several other politicians, are working to pass the Fairness for Struggling Students Act that would restore the option to discharge private student loans during bankruptcy.
- Check out NerdScholar’s Fact Sheet for more information.
- You should always talk with your loan servicer, often times they want to help to reduce your burden and work with you to come up with a payment plan you can afford.
- In the case of federal loans, take a look at some of the unique repayment plans discussed in the first question, to see if you might qualify for any of the reduced payment plans.
A question that I have is that I often here people paying really high interest rates on their student loans that are often double when people are paying on 30 year mortgages with no way to refinance.
There are several avenues to refinance, both federally and privately. The refinancing market is more competitive than ever, so lenders’ rates are much lower and many offer unique repayment plans to help students just starting out.
As an example, cuStudentLoans offers an interest-only payment for the first four years of your consolidation loan. Although you will pay slightly more over the full term of your loan, this is a great option for younger graduates who are struggling to get their finances in order or have more expensive credit card debt to pay off.
- Another resource is NerdScholar’s Student Loan Calculator, which helps you to weigh different loan options and see the costs/benefits of consolidation.
- Check out my article Tips for Paying off Student Loans Early which goes into more details about consolidation.
What’s the best way to pay down your student debt directly after college? I see a lot of advice regarding consolidation, debt snowball and etc. I just want to know the best strategy sometimes!
To get a full overview of tips and steps to begin paying down your student loans, you can read my article on Tips for Paying off Student Loans Early. Here are a few things to help guide your repayment strategies:
- Get Organized – The first step is to know all your loans, their terms and rates, and grace periods. Sign on to http://www.nslds.ed.gov or use a service like Ready for Zero to help keep track of all your different loans.
- Plan Ahead – Make a simple budget so you know how much income you have after subtracting your loan payments. This helps you to understand how much you have in your budget before making big decisions like signing a rental lease or buying a car. A budget also will help you to set aside additional money to accelerate your loan payments.
- Accelerate Payments – The more you can accelerate your loan payments, the more money you will save in the long run. Take these two examples (using the average of $25K in loans at an interest rate of 5.1% over a 20 year repayment):
- Double Your Payments: By doubling your monthly minimum, to $338 instead of $169, the average student will pay off their loans 12 years ahead of schedule and save $10K in interest.
- The Latte Factor: For most people, a morning caffeine fix is necessary. However by buying a $2 coffee instead of the pricey $4 latte, you can save $10 a week. By putting just $40 extra towards your student loans each month the average student will pay off their loans 6 years ahead of schedule and save $5K in total interest.
- Consider Consolidation – One of the benefits of consolidating is you can simplify your monthly payments into a single loan. You can also extend your term to lower your monthly payment, but this will cost you more in interest over the life of the loan. A few additional items to keep in mind when considering consolidation:
- Make sure consolidation will actually save you money! Your new interest rate should be very close or the same as a weighted average of your current loans. Additionally, be wary of offers that drastically reduce your monthly payment. If your loan term is extended to 20 or 30 years, you will end up paying significantly more in interest over the long run. Use a loan calculator to help you evaluate and compare your different consolidation options.
- Consolidating your federal loans (such as Perkins and Stafford loans) will give up certain rights specific to government loans. If you think you may want to take advantage of government programs such as deferment or income-based repayment (IBR), you may want to hold off on consolidation.
I’ve been hammering away at my student loan debt ever since I left school in mid-2009, with the goal of being debt free ASAP (I still have about $15,000 left to pay off). Now my husband and I are expecting our baby girl’s arrival in 6 weeks.
We’ve decided that I should stop paying every possible penny to get rid of my debt and instead, focus on beefing up our emergency savings. I still make my minimum payments, but I’m not getting rid of the debt quickly, like I did before the baby news.
Do you think we’re doing the right thing? I’d like to be debt free ASAP, but it seems wise to have some extra cash on hand right now. The thing that kills me is that the interest continues to accrue daily, so in the end, we’ll end up paying a lot more over the course of the loan repayment period.
My question is: How important is it to pay off your student loans ahead of time? Some people say student loan debt is the best kind of debt. I consolidated at a good time and have a very low interest rate. I have a good credit score but I’m wondering if having loans from college/grad school has any negative impact on me, say down the line when I may want to buy a car or house. I’m content to keep them on auto-pay for the next 30 years…
- Follow-up question…is there a difference between consolidated federal loans versus private loans (I have both) in terms of impact on the above mentioned?
Great questions. I interpret these questions as: Should I pay off my student loans ASAP or maximize my personal finances. Many adages will tell you “the best debt is student loan debt,” but I personally feel the best debt is “no debt.” This is a personal issue that will be different for each person, I can provide a rough outline of the advantages and disadvantages, but you may weigh these differently in guiding your own decision.
I am not risk averse. I like to keep my finances simple. That is why I chose to pay off my student loan debt as soon as possible. Managing my finances takes me away from doing other things I love, another reason to keep it simple. If I am juggling a portfolio of assets and debt, sure, I might build up my net worth,
- Advantage to maintaining student debt:
- Student debt is considered an installment loan and carries high balances and long terms. Making regular on-time payments can build and maintain a great credit score. This is particularly important for younger borrowers, as they may have a limited credit history.
- In many cases, student debt can have lower interest rates than other forms of debt. You should always pay the minimum payments on all your debt, but if you have extra money to pay off debt, you should optimize those payments to loans and debt with the higher interst rate. This will save you money in the long run on your debt. S
- Another consideration for low-interest student loans: Many financial planners will argue that individuals can make more money in the stock market than the interest on their student loans. “Why pay off a 5% loan if I can make 10% in the markets.” Personally, I am more risk averse, and would caution any potential investor of hedging their student loans. Personally, I am more risk averse and like to keep my finances, and my asset portfolio, as simple as possible.
- Disadvantages to paying off your student loans:
- The common notion is to always have 3-6 months of cash readily available in case of emergencies. For younger graduates, this savings may be hard to build up with student loans, so it would be wise to put away some additional savings to build up an emergency fund before paying off additional student debt. In the case of the question above, I think it is absolutely the right decision to build up family savings, seeing as your family is getting a new member!
- Like any big financial decision, a good portion of this comes down to emotions. Personally, I did not like having the burden of any debt hanging over me, especially student loans. At a young age, you don’t want to hold yourself back from freedoms such as traveling, or switching careers, because you are concerned about your student loans. This is a psychological factor, and will effect each person differently.
In my personal case, I wanted to pay down my $38,000 in student debt as soon as possible for emotional, rather than financial, reasons. Once I paid off all my debts, I was free to leave my stable corporate job and start NerdScholar.
I also do my best to keep my personal finances as simple as possible. The more time I spend managing my finances (investments, loans, etc.), the less time I spend doing what I really want to do in life. Do I have any investments? Nope. Do I have 3-6 month of emergency savings? Nope.
I had an unbelievable credit score due to my loan payments, which provided me with a huge credit limit if I needed any emergency funds. I prioritized paying off my student loans at the cost of other gains.
There is no single answer, but by weighing the above advantages and disadvantages for your own scenario you can make the best decisions for your own situations.