Student debt in America is reaching crisis levels. For some time it has been pretty easy to get school-related government-backed loans. It has not been as easy to find good paying jobs once you graduate — especially if your degree is in general liberal arts. So more and more students face major debt burdens — around $26,000 on average. And many have loans much greater than that.
What is a graduate to do? You may be able to defer your loan payments for a while — but interest will continue to grow if you do. Then when you have some income your required payments will be even higher.
Some college grads do drastic (and interesting!) things to get that debt paid off. They go to exotic places for jobs and spend next to nothing. Others put off expensive fun and luxuries like pricey coffee drinks. They do everything they can to reduce expenses to a bare minimum.
What are your options? Fortunately there are many. But there is not a magic bullet that makes loan obligations disappear. The loans may have been easy to get but that oh-so-helpful government is not simply going to forgive them. Your task won’t be easy — but armed with information you can do it:
Discover your program today!
Update December 2019
Many states have latched on to a new strategy to attract college grads to come live and work in their states: they pay off - or help pay off your student loans! Sometimes the deal depends on you working in specific — professions or in an area where they have a workforce shortage. About twenty states are offering these incentives so if you’re graduating and have some major debt payments looming you might want to check out which states look attractive to you. So far the Wall Street Journal has reported that some of the participating states include Texas, Utah, Maryland, Delaware, and Florida.
Important Deadline Are you planning to become a lawyer, or are you already a lawyer — with a lot of student debt? You can get as much as $10,000 to reduce your student debt each year if you commit to working for at least three years as a state public defender or as a state prosecutor. These funds are available from the John R. Justice Student Loan Grant Program. The deadline to apply for the 2019 fiscal year is coming up on May 21, 2019. Get more details and find out how to apply at FY 2019 JRJ Program Application Guidance.
Here are some pretty simple tips to get your debt paid off faster — they may seem small but added up and practiced regularly they can definitely add up and save you a lot!:
- Be careful about choosing your repayment plan. If an income-related one is available it's a wise choice as interest rates are commonly lower.
- If at all possible, and even if it's just a few dollars a month, start repaying your student loans before the end of the grace period, and if possible while you're still in school. You'd be surprised at how much it can save you over the term of the loan.
- If you can “auto-debit” the loans – that is, have automatic payment from your account, definitely go with that – a lower interest rate is pretty much guaranteed.
- Only keep as much of the money loaned as you need. That may sound crazy and many students want to keep whatever “extra” they might have (say because of getting a scholarship), but if you hang on to the money you don't need you'll be paying interest on it. Over the years that really adds up.
There are both traditional and non-traditional ways to get rid of your student debt. First, we offer a warning: because high student debt is so common some companies are taking advantage of the situation. They advertise very persuasively about how they can help you, then charge you a lot of money to do simple paperwork you could do yourself! They basically arrange to be your legal power of attorney (even if they’re not calling it that) and they act in your place and call your college, loan servicing agent etc. to see what’s available and fill out the paperwork for you. Folks, the paperwork is not hard. And every servicing agent for government loans has to follow specific rules regarding repayment plans, loan forgiveness and consolidation.
Update January 2018 There’s been lots of advertising lately encouraging people to refinance their student debt, presumably at a lower interest rate than existing student loans. SoFi is the best known player and has refinanced more than $3 billion in loans over the past five or six years. The option is becoming increasingly popular and tend to make the most sense for those who have well-paying jobs and pretty high credit scores (over 660). If that describes you, you should probably check out the benefits of refinancing. Often the new interest rate (if you meet the above criteria) will be lower than federal student loans. Plus you typically don’t have to pay an “origination fee” so there’s no extra charge tacked on to loan payments. If you don’t meet the credit score and you have a low income you might be able to find a good refinancing deal with a credit union.
Update August 2017 If you’re single and trying to work off loans on your own, don’t consider it an impossible task. A recent review about student debt highlighted single people who actually considered it an advantage: they could live on the cheap and work on their relationship with their finances rather than with another person. You don’t have to discuss — or argue — with another person about how you’ll do — or not do — things to save money and devote it to debt repayment. No need to keep an eye on what a partner is spending in that joint account. And you don’t have to convince someone else that a particular sacrifice could be really beneficial in terms of reducing your debt. Focus on big cost items rather than small and consider getting a roommate to reduce your rent. Get a second job — even if it doesn’t bring in a lot you can use whatever it does get you to pay down your loan and reduce your interest costs. Don’t get depressed: get creative!
Update December 2016 We’ve all heard about the crushing debt burden many students and graduates are facing due to the extent of their student loans. Now it looks like taxpayers will be footing a huge bill to forgive more than $10 billion (yes, billion) in student debt. Meanwhile the GAO (Government Accountability Office) has reported the full cost of income-based payment plans and has criticized the government’s methods of accounting in its student loan portfolio —- which is $1.26 trillion. Due continually enhanced income based payment plans the GAO report says that about $137 billion in debt will not be repaid — and that only refers to loans made in the current fiscal year. Students should note that loan amounts forgiven are taxed as income for private sector employees but not for public sector workers.
Back to Standard Options: There are a number of “standard” options for you to deal with your debt. There are also some more creative, definitely non-standard ways to deal with it, as you will see below in our section on “nontraditional methods.” Be sure to check that out thoroughly and see if you find the answer to your problems! But there are also some handy tools you can use to explore the traditional options. The federal government offers a student loan repayment tool for loans you get from the government, and there is also a private student loan repayment tool provided by the Consumer Financial Protection Bureau. You can find the fed’s tool at student loans.gov and the private tool at consumerfinance.gov.
So get educated, never give your FAFSA PIN to anyone, and read on to see what you can do for yourself:
These are basically do it yourself approaches to paying off your debt. A couple of examples:
Private Student Loans If you are buried under student debt you may be confused about all the different federal repayment plans you have to sort out. But if you have private student loans, those options are not available to you. If that’s your situation and you’re feeling burdened by unreasonably hight interest rates, you might do well to check out the refinancing options that are available now. There are several of them, with fixed and variable loan rates. The fixed rate options range from 3.25% to 7.28%. Variable rates go from a low of 2.27% to 6.29% (but remember these rates can go up or down). Average credit score requirements vary from 680 to 774. There is also variability in the amount you can borrow and the number of years for repayment. You can find a summary and reviews of the lenders on Nerdwallet.
Save More, Work More: A young woman with $93,000 in student debt made a deal with her fiancé. She would cut out all possible expenses and earn additional income from odd jobs; he would stay home with her instead of going out and save so they could get married once the debt was paid. The woman not only cut out all “extras” in her life, she also took on baby-sitting jobs, fiver gigs, and other creative money-making assignments. And she paid off all her loans in record time.
Reduce Interest Owed: Borrow a trick from the folks who show you how to pay your mortgage off faster. They act like it’s a big secret but really it’s quite straightforward. A big part of what you must pay to get rid of your student debts is the interest portion of the payment. Even though it may like small each month compared to your loan principal payment, those charges add up (a lot!) over time. It’s important to know that you are charged interest each month not on the original amount that you borrowed but on the amount left that you owe. By making a slightly larger payment than required each month, you reduce the remaining principal owe and the interest you must pay automatically decreases too. An example is a $25,000 loan with an interest rate of 6.8% and a payback period of ten years. The normal monthly payment would be $288. If the borrower could pay $700 per month instead, the debt would be gone in three years and the borrower would save more than $6000 in interest paid. You might not be able to bump your payment up quite that much each month, but any increased amount you pay will reduce the cost of your loan and the amount of time it takes to pay it off.
Exotic Escapes: A number of students have taken jobs in far-away, little known places in the world. They earn some decent money, have a lot of interesting experiences, and their cost of living is much less than in the U.S. They have an adventure, do gratifying work and put every extra penny toward their expenses. Sometimes they even continue their careers in foreign countries once their loans are repaid.
What about using credit cards? Here’s an important caveat for you (that’s a warning….). You may find yourself tempted to transfer some of your loan balances to a credit card. While that may get you some sort of bonus with the issuing bank it will probably only get you into deeper debt. Credit cards have notoriously high interest rates — much higher than were your student loan is at. If you trade in a 4% loan for a 20+% loan you’re going to pay a whole lot more in interest over time. Instead, skip the fancy coffee and have more of your meals at home. In fact, pretend you’re still a student and do some of the same cost cutting. And make sure those savings go into your next debt payment.
Crowdfunding has now come to the world of student debt repayment. In return for working or volunteering for specific non-profit organizations, you might inspire others to contribute to your cause. Groups like Zero Bound and SponsorChange help you to identify those organization and connect you with people who would like to help you pay off your student debt.
You may know about some of these but perhaps not. And you probably don’t realize just how much your loan balance will grow if you go with the tempting option of Deferment. For certain jobs or income levels you can delay the date when you have to start making payment on your loans. But even deferring payment for a couple of years can cause the amount you owe to increase by 10% or more. It’s a great lesson in the power of compound interest. But it’s a difficult one when it applies to debt rather than to the amount your invested money could be making! So avoid deferment if you can and check out some other traditional programs:
News February 2016: Due to the collapse of Corinthian Schools - the for-profit chain of career schools that went into bankruptcy in 2015 - the Education Department is canceling almost $28 million in student loans associated with those schools. The schools were found guilty of fraud with regard to job prospects and other promises. Now many more are petitioning the government to cancel their loans too, claiming they are also victims of fraud. Over just the past half year over 7500 borrowers have applied to have $164 million in debt forgiven due to false promises used in recruiting. There will be a court battle for sure because the definition of fraud can be broadly interpreted. That will have to be resolved to determine just how big a burden taxpayers will bear – and how much in loans students - including you - may have erased. Stay tuned, particularly if you believe you were falsely led to believe that a high paying job was somehow guaranteed to you.
Income Based Repayment Plan: Estimates indicate 5 million borrowers could qualify for this plan, but only about 700,000 are enrolled. This one is definitely worth checking out!
If your loan amount is high relative to the amount of income you earn you may qualify for this plan. It allows you to cap your regular debt payments at no more than 10% of your “discretionary income” (the amount you have left over after your fixed expenses). You can use the Department of Education’s calculator to determine what your payment amounts would be based on your specific information. If the result is lower than what you must pay now, then you could qualify for this program.
Though this program would extend your repayment period and therefore the total amount of interest you pay, it may be just what you need to lower your payment amount until you have a higher income. Note that private loans, Parent PLUS loans and any loans that are in default are not eligible for this program.
Volunteer for Specific Organizations: Ready to make a multi-year commitment to a worthy cause? Specific organizations offer student debt repayment programs in return for your service. These include:
The Peace Corps offers deferment of certain loans (maybe not a great idea…), and partial cancellation of Perkins Loans (up to 70% based on number of years worked — definitely a good idea!). Join the Peace Corps, see the world — and maybe change your life… Americorps: If you work for them for 12 months, you will receive $4725 toward payment of your student loans. Vista: If you volunteer for 1700 hours, you get $4725 toward repayment of student loans.
The Military offers to pay off 15% of your student loan balance each year you serve. Each branch has a maximum that will be paid: the Army and Navy will each pay off up to $65,000; The Army Reserve $20,000; and the Air Force $10,000.
Profession-Specific Programs: If your professional field is in teaching, legal, or medicine, you may be able to obtain considerable loan forgiveness. It is generally available in return for working in designated areas for a certain number of years:
Teaching: If you teach in certain elementary or secondary schools that serve lower-income families you can get part or all of Perkins loans forgiven. The total amount depends on the number of years you work. They will pay 15% of your loan balance in each of your first two years; 20% in each of the next two years; and the remaining 30% in your fifth year. So if you can get through five years in what is probably a demanding (and potentially very rewarding) position, your debt will be gone!
Legal: You can receive loan forgiveness for working in specific areas. There are a number of programs detailed on the American Bar Association’s website — look for “Loan Repayment Assistance Programs”. These include additional programs offered by specific states, worth checking out.
Medical: Doctors providing services in certain areas can receive up to $170,000 in loan forgiveness. Nurses who work with qualifying non-profits for two years receive forgiveness for up to 60% of their loans; and optional third year provides an additional 25%. And the Department of Agriculture offers $25,000 in loan forgiveness for three years of work in selected areas.
Research Scientists: If you qualify you may receive up to $35,000 for loan repayment each year from the National Institute of Health. 50% of your time must be spent on NIH-specific research. Check out their Loan Repayment Programs to see what kinds of NIH research are available (all applications are received online only, between September 1 and December 31).
So — don’t get overwhelmed by your debt! Get creative instead and go after one or more of these programs. We would recommend starting with the income based repayment programs to make your payments more manageable immediately. Then go for one of these loan forgiveness programs. If none of these help and you're just feeling totally strapped, check out the leads in I Need Help.