Terry’s Columns Dealing with Student Loan Debt

Dealing with Student Loan Debt

By Terry Savage on February 19, 2019

The $1.5 trillion dollar student loan burden weighs heavily on graduates, their parents and the economy. Here are some resources to help you deal with this debt starting immediately after graduation and before you go into default. Remember, there is no way to escape student loan debt!

The place to start your search for information on payment plans and refinancing opportunities is StudentAid.ed.gov. Click on the section “How to Repay Your Student Loans.” The first step is to find all your federal loans. A link in this section will track them down, regardless of servicer or lender. Private lenders will track you down if you don’t contact them to set up a repayment plan within 6 months of graduation!

New grads should start here, learning how to sign up for automatic payments, which qualify you for a slight discount on interest rates. It also has links that explain alternative payment plans and loan consolidation. (But beware that consolidating all of your loans may limit you from participating in some programs listed below.)

Use the calculator here to figure out monthly payments. The “standard” plan will pay off your loans in 10 years. But many grads simply can’t afford those high monthly payments.

—Alternative payments

Federal student loan borrowers may qualify for an income-based repayment plan, which allows lower payments at the start of a career but increases those monthly payments based on a presumed growing income. However, the interest will build up over those low-payment years. Similarly, deferments on federal student loans ultimately add to the costs but allow you approved time to skip payments if you have a financial crisis.

Many families take on private student loans or parental PLUS loans. The private lenders involved have little incentive to refinance at lower rates since these loans are almost impossible to erase through bankruptcy (unless you can demonstrate true hardship), and each state has a different statute of limitations on collecting them.  Loans that are in default  impact your credit report (and that of the co-signer) and if the lender gets a court judgment, wages can be garnished and liens placed on assets including the family home.  These private loans are typically co-signed by parents, who put their own assets and retirement funds on the line. And they carry the highest rates, creating a big incentive to refinance them. 

—Refinancing student loans

Companies like SoFi.com refinance student loans but only if the student (or parent co-signer) has good credit and a good income. At Credible.com, you can get competitive offers for refinancing both private loans and PLUS loans.

Home equity loan interest no longer can be used as a tax deduction if the money is borrowed to pay down a student loan. And 529 savings accounts should be spent directly on tuition, because using the funds to pay down loans becomes a taxable event.

—Special deals for teachers, public service

There are some special deals that allow forgiveness of a portion of student loans for teachers and those who are employed by qualified public service organizations. But if you don’t carefully follow the prescribed steps, your payments may not qualify for eventual balance forgiveness.

Teachers benefit specifically from a program that allows loan forgiveness of up to $17,500 of their Direct or FFEL loans if they have taught at qualifying schools for five complete and consecutive years. The amount of loan forgiveness is tied to specific teaching fields, with math, science and special education teachers getting a higher amount of forgiveness. For more specific details, before you choose your teaching career and employer, go to TheCollegeInvestor.com and search for “teachers’ loan repayment.”

The largest and best known student loan forgiveness program is Public Service Loan Forgiveness (PSLF). On the surface, it looks quite simple. Just make 120 qualifying student loan payments to a Direct loan on time — and be employed full time by a qualifying employer when each of the payments was made. There are so many missteps that can derail your eligibility for this program. For details, go to Savingforcollege.com and search for the checklist for public service loan forgiveness.

It’s a good thing you have a college education, because you’re going to need it to work your way out of student loan debt. And that’s The Savage Truth.




a personal
finance question