Student loans are becoming a problem for more college graduates — or more particularly the ability to pay them. Higher college tuition and fees has led to larger student loan debts with commensurately higher monthly payments. This can be a heavy burden for a young person trying to make their way into adult life. But it’s a much bigger problem for recent grads who are either unemployed or under-employed.
If that’s the situation you find yourself in, there are some options that can help.
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Student Loans Aren’t Like Other Debt
What makes student loans particularly difficult to deal with when you can’t afford repayment, is that you can’t make them go away like you can with other debt types.
Most loan types can be discharged in bankruptcy, settled for less money or negotiated in some other way. Student loans however are insured by the US government and if you can’t repay according to the original terms, the consequences are much greater.
Your tax refunds can be seized to repay the debt, or your wages can be garnished. If you owe a very large amount, this can result in a burden that will last for many years. In the normal course of business, the only way to get out of a student loan debt is to pay it off. The best you can hope to accomplish otherwise is a reduction in payments and possibly a partial forgiveness of the loan balance.
Income-Based Repayment Plans
If you can’t pay your student loan debts due to either low income or unemployment, there may be help from the federal government in the form of an Income-Based Repayment Plan, or IBR for short. The program started in 2009 for just this purpose.
According to the IBR website, the plans have the following features:
- based on your income and family size;
- adjusted each year, based on changes to your annual income and family size;
- usually lower than they are under other plans;
- never more than the 10-year standard repayment amount; and
- made over a period of 25 years.
The payments are based on 15% of your discretionary income, and can be extended out up to 25 years. The plan also has provision for debt forgiveness after 25 years of repayment, but that does come with other requirements. The forgiveness feature can be accomplished in as little as ten years for certain public service organization employment.
Not all student loan programs are eligible for an IBR, but there are other alternatives as well.
Other Ways to Deal with a Student Debt Problem
If you can’t qualify for an IBR, or if you just want your student loan debt to be paid as soon as possible there are certain steps you can take on your own. How much money you owe on your loans will have a major impact on how far you go in your efforts.
Keeping your expenses low is the most basic step, especially if your student loan debts are large. This may mean having a shared housing arrangement, driving a very inexpensive car, and forgoing luxuries like restaurant meals, vacations and travel, and high-priced clothing and entertainment equipment. You may have to do that for as long as it takes to payoff your student loans.
You can also use something like the “debt snowball“. If you have several debts, like a car loan or several credit cards, it will be easier to begin paying off your student loans when the smaller loans have been paid off first. The money that you save from the monthly debt repayments will lower your cost of living and provide you with extra cash to pay toward your student loan debts.
As an alternative, or maybe even as a supplement, you can look for ways to earn some extra income that will be dedicated to the repayment of your student loans. They can include a part-time job, a side business, or working your way toward a promotion or into a job that offers commission and/or bonuses in addition to your regular salary.
Work to Pay it Off Sooner
There’s sometimes the thinking with student loans that it’s okay to keep them outstanding because the interest rate and payment are low, at least in comparison with the balance owed. That may be okay as long as you have a job and you’re making good money, but a future job loss or pay cut could change that — in a hurry.
For that reason you should want to payoff your student loan debt as soon as possible. Student loan debt is still debt, you should want to make any debt go away as soon as possible.
How are you dealing with pain your student loan debts?