8 Tips to Get Out of Student Loan Debt
Earning a college degree is an exciting time for graduates, but it can also be stressful as nearly 40 million Americans are saddled with $1.2 trillion in student loan debt, according to CBS News. Unfortunately, student loan debt is a growing economic crisis across the nation. But, a college degree doesn’t mean you need to be saddled with student loan payments for the rest of your life. Read these eight tips to begin digging your way out of post-graduate debt.
1. Pay what you can
This is different than paying what you want. “Student loans are virtually impossible to discharge in bankruptcy — you have to prove “undue hardship” — and there are enough federal options to help with repayment that you don’t need to let the balance sit accruing interest in deferment and forbearance,” says Janet Novack, a Forbes writer. Don’t make the mistake of trying to make unrealistically high payments — make sure you’re signed up for an income-based repayment plan. It’s better to pay an amount you can afford rather than miss a payment and watch fees pile up.
2. Tackle your loan principal
According to Katie Couric, whenever you find yourself with extra cash, consider putting some toward your loans. “If you pay more than your minimum, that payment will automatically be applied to future interest payments and not to lowering your loan principal,” Couric writes. By adding a note telling the loan processor to treat the extra cash as a reduction of principal, it helps lower your future interest payments.
3. Take advantage of forgiveness programs
According to the Chicago Tribune, you could be eligible for Public Service Loan Forgiveness and not even know it. PSLF says that by participating in public service opportunities rather than working in the private sector, some of your student loan debt is forgiven — that includes almost any state, federal, or nonprofit organization. The Consumer Financial Protection Bureau estimates that potentially 33 million people are eligible for the program, but most aren’t aware they are.
4. If you’re not eligible for PSLF, try another
There are more than 60 different student loan forgiveness programs. Many employers also offer student loan repayment as a benefit, so be sure to inquire about it. “Try doing your own digging to find other programs. A little work could save you a lot of money, to the tune of thousands of dollars,” says Chicago Tribune writers Betsy Mayotte and Brazen Careerist.
5. Don’t try for a quick fix
There’s a difference between informational websites, such as studentloans.gov and tuition.io, and sites that promise quick fixes to reduce debt, according to Forbes. “You just have to patiently chip away at the debt, and be wary of anything that promises otherwise,” Novack says. If you see a site promising to “slash your monthly payments,” proceed with caution.
6. Reap the tax benefits
According to Couric, you can deduct your student loan interest when tax time arrives. For 2013, you can deduct up to $2,500 or the total amount you paid in student loan interest, whichever is less.
7. Focus on private loans first
Private student loans have variable rates, which is unlike federal student rates. Even if private student loan rates seem low, they most likely won’t be that way for long. Private student loans also offer fewer repayment options and no forgiveness options, according to MSN Money writer Liz Weston. Think about paying the minimum possible on your federal loans while you focus on paying off the private loans.
8. Reduce interest rates
Many student loan lenders have some kind of interest rate discount for people who set up direct deposit, according to MSN Money. Lenders prefer direct deposit because it increases the chance that you’ll continue paying on time. Often, the discount is about 0.25 percent, which can knock off a big chunk of the interest you’ll pay over the life of the loan.