Blink.
Did that take the better part of a second? There, student loan debt just grew by $2,726. According to Marketwatch, that around three-thousand dollar number, accumulating every second, is part of about $1.3 trillion dollars graduates now owe for their college educations.
The debt can be a lifelong leech. What would life be like without it? This is the question millions of people are asking. We pursue a career because we’re passionate about something. But plenty of us also pursue a career, and get a degree, because we want to make good money. Paradoxically, this pursuit of good money means we owe more than ever before.
Don’t despair. This is a chance to tackle a very real problem, a problem shared by 40 million Americans and counting. You’re not alone here. Plenty of us feel this is out of control. Think of taking control as a continuing education process. You’ve got to own the debt, corral it, and work with it until it’s out of your life.
1. Organize daily finances
It will be easier to sort this out if all of your daily finances are in order. Here are the steps:
Organize by using free services – Mint and Personal Capital are both tools for putting all of your accounts, including bank accounts, investment accounts, and student loan accounts, onto a single dashboard where you can see them
Do autopay – Your budget should be setup so your loan repayment is part of basic expenses that don’t change; tell your bank to autopay basic expenses online each month and make sure you deposit enough from each check to cover the autopayment. Setup overdraft protection in case something goes wrong, set up auto-debit directly with your lender, and receive a twenty-five cent discount on your interest payment
Audit yourself – At tax time each year, check your accounts thoroughly to make sure nothing is amiss
2. Look into loan forgiveness
You may be eligible for loan forgiveness. Here are the types:
Public Service Loan Forgiveness – To qualify for PSLF, you must work for a non-profit, the government, or “a private company that provides public services”; also, your loan has to be from the federal Direct Loan Program, and you have to have already made 120 payments; check out the hack on income-based payment plans for info on how you can pay nothing per month but have it qualify as payment
State forgiveness – 45 states offer forgiveness; the majority of these programs also require you to have a job in public service. Go here to find information state-by-state
Perkins Loan cancellation – This also applies to public service individuals who received a Perkins Loan; in particular, teachers who work in any of the teacher shortage areas, or at low-income schools, qualify. For the full list on who’s eligible and the amount that could be forgiven, go here.
Military Forgiveness – Military personnel qualify for the PSLF, the Perkins cancellation, the National Defense Student Loan Discharge, and the Veteran’s Total and Permanent Disability (TPD) Discharge, as well as a number of deferments and repayment programs
3. Check out a DIY payment guide
This guide offers advice on the following:
Why making larger payments makes sense – simply paying $200 more than the minimum payment per month saves you $2,400 on interest, and you pay off the loan 4 years earlier
The value of the right mindset – listing the reasons why you want to live frugally, in order to pay off your debt quickly, will help prepare you for the challenge of tightening the belt
How to create a spending plan – looking at your last three months of bank statements will help give you an idea of your average expenses
How to track spending – you can create a spreadsheet with each expenditure listed, and phone- reminders of when to make payments
Creating an emergency fund – start with $1000 and then try to save 3 to 6 months’ worth of expenses
Taking on an extra gig – the gig economy offers a ton of options, such as driving for Uber, and according to Fabio Rosati of Upwork, this economy contributes “more than $700 billion to our national economy”. Why not take advantage of the options?
Creating your repayment plan – The National Student Loan Data System will pull up all your loan services, and from there you can decide on a “Snowball Method” or an “Avalanche Method” of repayment
Looking at alternative repayment plans – Loan consolidation, deferment, and forbearance are all options available to you
Getting a support system – having someone there to keep you accountable is priceless
Rewarding yourself – finding small ways to do this will help keep you on the payment path; after all, man cannot live on bread alone
4. Look into income-based plans
In December of 2015 the federal Revised Pay As You Earn (REPAYE) program will go into effect. This program is more lenient than any of the income-based programs that have been available. Under this program, if you received a Direct Loan, you’ll pay no more than 10% of your discretionary income. “Discretionary” income is Adjusted Gross Income above 150% of the poverty level for your household.
If you absolutely have no job and no income, you’ll still qualify for this plan—unless you’ve defaulted on your loan. You could end up paying nothing per month if 10% of your income is nothing. But interest would still accrue.
You can also consolidate your Federal Family Education Loan (FFEL) and Perkins Loan into a Direct Consolidated Loan, which would then be eligible for REPAYE.
5. Look into consolidation
A caveat: you can’t consolidate private and public loans. Consolidating your state and federal loans will allow you to pay less per month, but once again there’s the issue of interest adding up as you’re making minimum payments. Still, consolidation will simplify the situation, giving you one payment at a set interest rate. And thanks to REPAYE, that payment could be very low, which will help a great deal if you’re strapped for cash right now.
6. Deduct your interest
Look at the information your lender has sent you. Anything helps, and you can reduce your taxable income by up to $2,500 if you’ve been paying on the interest for your loans. If you qualify for deferment or forbearance (meaning you wouldn’t have to pay on the principal of your loan for a certain period of time), try scraping together money to pay on the interest, and then look into deducting what you pay from your taxes.
7. Volunteer for Zerobound
Here, you can sign up to volunteer and get crowdsourced money to go towards paying your student loans. SponsorChange is another site of this same nature. Make sure to familiarize yourself completely with these opportunities before you take them.
8. Volunteer elsewhere
AmeriCorps, VISTA (Volunteers In Service To America), Peace Corps, Teach for America, and National Health Service Corps offer forms of student loan forgiveness or reimbursements.
9. Try a student-friendly cash-back credit card
Be careful with a credit card; it’s the same as taking on more loans. But if you are confident in your budgeting skills, a card such as UPromise is specifically designed to give you good cash-back rewards from your purchases, which can then go directly toward paying off your debt. You’re going to be making purchases anyhow, and this is a chance to make money from them. But you have to be highly disciplined.
10. Consider refinancing
Right now this will lower your interest rate. But once again, be careful. Refinancing will put you in private loan territory, where none of the options (listed above) for a federal or state loan apply. Don’t refinance unless you’ve got a good job, are sure you can meet the principal on your loan, and are simply looking to pay less interest. But be aware that interest rate could go up.
11. Be aware of the discounts
There are direct-debit discounts, on-time payment discounts, graduation credits, and a degree of forgiveness available from certain lenders. The Department of Education also offers two types of discounts.
Featured photo credit: Light brigading via flickr.com
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