Welcome back! Today I want to review some strategies for dealing with student loan debt. According to Forbes, the amount of student loan debt in America is a staggering $1.5 trillion (with a “T”!). I’m all about higher education, but I can’t stress enough the need to do so on a cash basis. You don’t want to be one of those people whose student loan debt balloons into 6 or even 7 figures. Yes, it’s happened, as reported here.
I am fortunate in that I was able to cash flow most of my college education, and the one loan I had was a small one. With some help from my dad, it was paid off over 30 years ago. Because I have so little experience with it, I am nowhere near expert in dealing with, or advising on, student loan debt. I can’t ignore it, though-it’s too prevalent in today’s society. In this installment of the Debt Free Challenge I’d like to share with you some resources I found to help you work through your student loan debt.
Pay More than Just Interest
According to a report from CNBC, “fewer than a quarter of student loan borrowers are repaying their [loan] principle…” While it’s possible you are eligible for a deferment or forbearance (details can be found here), you are better off just repaying the loan as soon as you possibly can. Add the principle amount (NOT just the interest) to your snowball or avalanche and attack it as if it were any other debt.
You must be vigilant when making your principle payments to ensure that they are applied properly. Keep a close eye on your statements and be sure to contact your lender if you find your payments have been applied incorrectly.
PAYE and REPAYE are a couple of income based programs that may help you get a handle on your student loan debt. Details on what they are and how they work can be found here.
Some other smart strategies for repayment of your student loans can be found here.
Consolidating Student Loans
Consolidating or refinancing your student loans can make the repayment process a little easier by rolling all of your loans so that you’re making only one payment. You can also lower your interest rate using this strategy. Some great advice on how to consolidate your student loans, as well as some good lending resources, can be found in this comprehensive report from US News. This report also covers the advantages and disadvantages of consolidating your student loan debt.
Student Loans and Bankruptcy
With rare exception, student loans cannot be discharged in a bankruptcy. Before 1976, student borrowers could discharge their student loans in a bankruptcy if they were in repayment for more than 5 years. Lawmakers became concerned that students would simply earn their degree and then file bankruptcy to avoid paying back their loans so the law was changed. It was further changed in 1998 (Federal student loans) and again in 2005 (Private student loans) to allow for bankruptcy discharge in case of “undue hardship”. More details regarding student loans and bankruptcy, as well as some other repayment strategies, can be found in a report from Forbes linked here. The process is complex so if you decide to go this route, be sure to retain a bankruptcy attorney who specializes in student loans. Keep in mind such an attorney probably won’t come cheap.
Student Loan Hero has compiled a VERY comprehensive list of Student Loan forgiveness programs and options. You can find that list by clicking here. One very important thing to keep in mind, though-if you pursue loan forgiveness any amount forgiven will be treated as income. Keep the tax implications in mind if you decide to pursue loan forgiveness.
Lightening the mood just a little bit…One of my coaching colleagues, very tongue in cheek, suggested faking your own death would take care of your student loan debt but only if you don’t have a cosigner. I don’t recommend this strategy-keep breathing and pay off the loans!
I hope you find some of these resources helpful in dealing with your student loan debt. If I’ve missed anything you feel might help my other readers with their student loan debt, please share in the comments.
Be well and God Bless-until we meet again…
Note-Any and all items contained in the Older Wiser Money Miser Debt Free Challenge are intended as a resource for informational purposes only and should not be construed as professional legal, tax or investing advice.