The cost of a college degree has risen exponentially in the past decade. But, you do not have to be shackled to your lenders forever. Here, Attorney Jeff Scholnick outlines some strategies to reduce your student loan debt.
The best way to mitigate hefty student debt is to avoid getting burdened with major loans in the first place. Scholarship, grant and award money can all help to lower the cost of tuition, and choosing to go to two-year or in-state schools can help to reduce the cost even further.
While in-school, you have the option of paying on your federal or private student loans, and making interest-only payments before your scheduled monthly payments begin. This will reduce your payments upon completion of your degree, and can help mitigate the negative effects of capitalization – paying interest on interest.
Of course, after the fact and with degree in hand, these preventative measures help little. But, not to fear: there are several long and short term ways to ease the financial stress of student loan debt.
Method One: Income-Based Repayment Program (IBR)
Income-Based Repayment is a federal program that helps you manage your federal student loans by making your payments proportionate to your income and family size. It is based solely on income and family size, not loan amount. This means that those who are unable to find work immediately upon graduation may be able to pay even $0 per month in student loan repayments.
The repayment term for IBR loans is 20-25 years, after which any remaining debt is forgiven. It is important to remember that as with any federal program, the IBR program requires a significant amount of paperwork each year. Also, know that forgiven loan debt counts as income, and will be taxed, potentially leaving you with a much larger tax bill down the road.
Method Two: Forbearance and Deferment
In some cases, you may have the opportunity to seek forbearance (halting monthly payments for up to 12 months), or deferment (halting payments and interest for a period). While you may be eligible for these opportunities, it is important to speak with a skilled attorney or your loan officer to discuss your personal options.
Method Three: Debt Settlement
Debt settlement is a negotiation with your lender to lower your principal debt, or to make smaller/fewer payments. The process can be long and complicated, and success is not always guaranteed. Consulting with a qualified debt settlement professional or attorney can be key to ensuring this process will benefit you in the long run. Keep in mind that debt settlement may negatively affect your credit score and, in some cases, your financial standing.
Method Four: Working For a Governmental Unit or Non-profit
If you are working for a department of government such as local police, fire department or public defenders office, you may be entitled to forgiveness of your federal student loans after ten years of IBR payments. Also, if if you work for a non-profit as defined by the law, such as a hospital, your federal loans may be discharged after ten years of IBR payments. This is why every police officer, fire fighter and nurse with federal student loans should be in an IBR program.
While the repayment of your student loans may seem unfathomable, there are many opportunities available to graduates struggling with student loan debt. For more information, or to acquire the assistance of legal counsel, contact Jeffrey Scholnick.