It is not unusual for students to graduate with a debt in the thousands of dollars. Education is big business for schools and the government. However, this leaves new graduates with a huge problem: how can college loans be repaid?
It took me more than 20 years to repay what I owed. I didn’t have the financial know-how to look after my money properly. The sad part is if I knew then what I know now I could have been debt-free in a much shorter time. The following information has been well researched and I hope it will help you shave years off your loan payments.
How to Pay Off College Loans?
- Deferment vs Forbearance?
- Get That Loan Forgiven
- Lower Monthly Payments Using Consolidation
- Save Extra Money While Budgeting
- Income Based Repayment Plan
- Raise Extra Money
- Other Ways to Pay Debt Down Faster
What is the Difference Between Deferment and Forbearance?
- Both Provide A Different Kind of Financial Help
A deferment or forbearance is a temporary stoppage of your loan payments. Specific conditions must exist before permission is granted. Generally speaking, no interest needs to be paid during deferment periods. However, there are some federal loans where this does not apply. The interest is then accrued and added to the principal (the remaining amount). So be careful when checking this out.
On the other hand, forbearance can be a suspension or reduction of payments. In this circumstance, the borrower is required to continue paying the interest in both cases. In the case of suspended loans, it will increase the total amount owed. So it is very important to know exactly what you have before negotiating.
- Short Term Solution That Works
These options are a temporary solution for people who are unable to make loan payments on time. It may be due to financial difficulties, medical expenses or a change in employment. There are a few other specific cases as well, for example, a student doing their medical residency etc. The good point is it will provide you time to find a job or earn more money. The downside is it will take longer to clear your debt.
College Debt Forgiveness
- What is it?
This refers to the cancellation of all or part of the college debt. There is different terminology depending on the type of loan issued: loan forgiveness, loan cancellation and loan discharge. Be certain to determine which one you qualify for. They do vary somewhat. For instance, in one case you may need to report the amount originally borrowed for income tax purposes. In others, it is not necessary.
- Have You Won The Lottery?
There are specific guidelines as to who is eligible for these kinds of programs. One common example would include loan forgiveness for employment in a public sector job. Let me explain how it works in a little more detail. Take the Federal Perkins Loan Program cancellations. They may apply if you have a job in a specific field.
- Medical Technicians
- Family or child services worker
- Volunteer in the Peace Corps
- Member of the US Armed Forces (certain cases)
- And so on ….
This is like winning cash. The way it works is a percentage of the loan will be forgiven for each year employed. The actually figure depends upon the type of service you are engaged in doing. However, these are not the only people that can benefit from forgiveness. So it is important to visit the relevant government sites.
How to Consolidate College Loans
- Combine Everything, Pay Less Monthly
Consolidation is the process of combining all loans into one single loan. This is done by contacting your lender to work out the details and design a repayment schedule. There is no application fee when completed directly. However, private companies will charge a fee. I would recommend not using one.
- Pros & Cons
- + simplify’s loan repayment – one loan & one monthly payment.
- + lowers monthly payment by extending the length of time to repay.
- + may give you access to income-driven repayment programs or forgiveness.
- + switch to fixed interest rates.
- – could make more payments and pay more interest.
- – may lose borrower benefits/credits associated with the original loan.
- – loans cannot be removed (old loans no longer exist).
The application can be filled out online at student loans.gov. However, I would strongly recommend talking to an expert consolidation servicer before committing so that you are fully aware of the benefits and consequences and receive the best results possible.
Make a Monthly Budget
A budget is a financial plan that helps you keep track of your money so you can make informed decisions on what to do with your income. It sounds complicated but really isn’t. As a matter of fact, if you are like me you may even enjoy doing it as you watch your debts being reduced and savings grow. Here are a few questions to think about while you are preparing a suitable budget plan.
- What is the time span of your budget?
- What tool will you use to manage it?
- How much income will you have coming in?
- What are your fixed and variable expenses?
- How much will you save for emergencies?
- Does your budget balance? If not, what will you do?
- Have you set aside time to maintain and update your budget?
Income Based Student Loan Repayment Plan
This is another good alternative. It can provide relief to those who are finding it difficult to meet financial obligations. It resets your monthly payments at an affordable amount based on your income and family size. There are four different plans to be considered.
- Revised Pay As You Earn Repayment Plan
- Pay As You Earn Repayment Plan
- Income-Based Repayment Plan
- Income-Contingent Repayment Plan
The payment amount is a percentage of your discretionary income which is calculated using a certain formula. It varies under the various plans but is somewhere between 10 to 15%. There is a possibility that your monthly payment may be as low as $ 0 /mth.
The term is from twenty to twenty-five years (extended from 10) and different eligibility requirements are in effect for each plan. Information must be updated each year. It may also be done any time your economic situation gets worse. This means that your monthly payments could change over time.
It is important to speak to your loan servicer before applying and the application can also found online. Remember that this option will lower your payments but the time it takes to pay off the loan is longer. In some cases you may still be required to pay income tax on any amounts forgiven.
Ideas to Earn Extra Money
Once you have formulated a budget and determined what your loan payments will be each month, you can start thinking about earning extra money. The first thing you should have done ( with the budget) is identified areas to cut back on with spending. For example:
- Cancel cable TV and use Netflix instead.
- Stop eating out at restaurants.
- Going on a spending fast.
- Cut out the bad habits i.e. alcohol, cigarettes.
Secondly, why not look around and see if you have anything to sell. There are a number of ways that you can sell personal items on and off the internet. A few of them are as follows:
- Yard Sales
- Advertise on Craigs List or the classifieds.
- Use a form such as eBay.
Lastly, get a second job. Many folks take on a part-time job to save and put towards the debt. You can also find online work which may fit into your schedule better. There are companies such as UpWork and Fiverr where you advertise the type of work you want to do. Freelance work such as editing, writing, making videos and more.
I would also recommend you consider a work from home business. However, be cautious with this approach. I strongly recommend you go this route only if you are presently working and have a little money saved. Because it takes at least three months before making the first sale and for many, it takes a year or more for a consistent part-time income.
The beauty of having an online biz is you can eventually leave your regular offline job and the earning potential is unlimited. However, it is like any business. You must put in the time and effort to succeed and you need to choose a reputable company to learn from. So do proceed with caution here.
A Few Awesome Tips to Pay Down Debt
- Educate Yourself – Understanding loan jargon and the various rules, requirements, and processes will assist you in making informed decisions which in the long run will benefit you greatly by reducing the interest paid.
- Set Up Automated Payments – The very first thing you should do is automation. Meeting deadlines is very important for your credit rating and it means there will be less worry. You can focus on the positive.
- Make Prepayments – Whenever you have some extra cash saved put it towards the loan. Prepay as often as possible. This will reduce the length of the loan and interest.
- Leverage Home Equity – For those of you who have a home or condo see if you can consolidate the home and student loans. It will result in one payment, maybe with low interest and increased cash flow.
- Be Responsible – Never miss a payment. Stuff happens in life. If for some reason you can’t notify your lender right away and negotiate a solution. This will be very important for your credit rating later in life.
- Set Smaller Goals – It helps to look at a smaller picture. Instead of focusing on the large amount, say 60, 000, concentrate on smaller periods of time and goals. For example, this month I’ll set my goal at $ 500.
- Ask For Help – These days it is becoming more acceptable to ask for help. If you are getting married or have a birthday ask your friends or loved ones for some cash towards the debt in lieu of a gift. Ask your employer for student loan assistance as a benefit.
I really enjoyed researching for this article. You can find much more detail on some of the government sites. Of course, if you are interested in making extra money working from home, please take a look at Wealthy Affiliate or the other reviews on my website. As always, if you have any questions or comments concerning this topic please leave them down below. Thanks!