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If you're feeling overwhelmed by student loans, there's plenty of reason for that: Between 2008 and 2018, student loan debt in the U.S. more than doubled, according to Experian data.
But you have options to make the debt more manageable, both on a monthly basis and long term. Lowering student loan bills will help you save for retirement, build an emergency fund, and even afford hobbies, travel and other discretionary expenses that make for a full life.
Here are three ways to get help with student loans.
1. Consider Switching Repayment Plans
Your first step, if you have federal student loans that will be unaffordable for the foreseeable future, is to check out income-driven repayment plans. Some have income requirements you must meet, so get in touch with your student loan servicer—the company that collects your payments—to find out which option is best for you.
Income-driven repayment lowers monthly student loan bills to a fraction of your discretionary income, as the government defines it. You'll generally pay between 10% and 20% of your earnings, depending on the plan, and your balance will be forgiven after 20 or 25 years.
Keep in mind that the forgiven balance will be taxed, and you'll likely pay more in interest. You must also recertify your income each year to stay eligible. Here's how each plan breaks down:
- Income-Based Repayment: Under this plan, those who first took out loans before July 1, 2014, will pay 15% of their discretionary incomes per month and get forgiveness after 25 years. Borrowers who took out loans for the first time since that date pay 10% of their discretionary incomes and get forgiveness after 20 years. Your bill will never be more than what you'd pay on the government's 10-year standard repayment plan. This is the only plan that you can use to repay certain student loans from the Federal Family Education Loan program, known as FFEL loans, without consolidating them first.
- Pay As You Earn: This plan lowers bills to 10% of discretionary income and offers forgiveness after 20 years. It's likely your best option if you meet the requirements: You must have taken out direct loans or FFEL program loans for the first time after October 1, 2007, and received a disbursement of a direct loan any time after October 1, 2011.
- Revised Pay As You Earn: While you must show that you can't afford the standard 10-year plan to qualify for Income-Based Repayment and Pay As You Earn, Revised Pay As You Earn is available to all federal loan borrowers. You'll pay 10% of your discretionary income. Additionally, you'll get forgiveness after 20 years if your loan was used for undergraduate studies, and 25 years for grad school loans.
- Income-Contingent Repayment: This is the only income-driven plan available to parents who took out federal PLUS loans and are struggling with repayment. You'll pay either 20% of discretionary income per month or the equivalent of a monthly payment on a 12-year repayment plan. Forgiveness occurs after 25 years.
2. Apply for Student Loan Forgiveness
Federal student loans come with additional forgiveness programs for borrowers in certain public service occupations. Closely follow each program's requirements to get forgiveness; your student loan servicer should be able to guide you.
- Public Service Loan Forgiveness: You may qualify for this program, known as PSLF, if you work 30 or more hours per week for a government agency or 501(c)3 nonprofit, you have federal direct loans, and you're on an income-driven plan. You can consolidate other types of loans to make them eligible for the program, but only payments made after consolidation count. Forgiveness on the balance happens after you've made 120 monthly payments, and it won't be taxed as income. The program has so many requirements that it can be hard to know if you're on track; use the government's PSLF Help Tool to check.
- Teacher Loan Forgiveness: While public school teachers generally qualify for PSLF, there's another program that gives certain teachers access to forgiveness sooner. Teacher Loan Forgiveness is available to teachers in low-income schools and forgives up to $17,500 in federal direct or FFEL loans over five years. Teachers can use both Teacher Loan Forgiveness and PSLF back to back if they're eligible.
3. Consolidate Student Loans
Federal student loan consolidation will qualify certain loans for income-driven and forgiveness programs. It's also a way to lower payments on its own by extending your repayment term.
When you consolidate federal loans, the government turns multiple loans into one and gives you a new fixed interest rate that's a weighted average of your previous loans' rates, rounded up to the next one-eighth of 1%. Consolidation won't save you money on interest, but depending on your balance, you'll have more time to repay the consolidation loan—up to 30 years—and your monthly payment may decrease. When you're in need of a much lower monthly payment, though, income-driven repayment may be a better option, since it includes forgiveness.
Private student loan consolidation, or refinancing, can also lead to a lower monthly payment or interest savings over time. It's when a private lender pays off either private or federal student loans and provides you with a new one at a lower interest rate, which is based on your credit and income.
Refinancing isn't a good choice for borrowers struggling with loans, since you'll need to show strong income and credit to qualify for the lowest interest rates. Plus, refinancing federal loans will disqualify them from programs like income-driven repayment and forgiveness. Consider refinancing just high interest private student loans, if possible, or waiting until your finances are more solid.
The Bottom Line
Paying your student loan bills on time should be a top priority, since missed payments can torpedo your credit scores. But that doesn't mean you should sacrifice saving or spending money on things you love. Get help with your student loans and lower monthly payments so you can focus on other priorities—and, yes, enjoy life too.
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