Currently, student loan debt is the second-highest consumer debt category in the United States, second only to mortgage loans. The average post-graduate has nearly $40,000 in student loan debt, so it is vital to develop a plan that will help you to manage this debt and avoid going into default. Here, the student loan debt attorney Jeffrey Scholnick discusses six ways you can reduce your student loan debt.
Start Financing Early and Stay Ahead
To combat the accumulation of student loans from the beginning, consider making student loan payments while in college if you have the financial resources to do so. Beginning to pay your loans as a current student will help provide you a head start, and help you to avoid paying more interest in the future. In order to reduce the burden of interest payments even further, consider paying more than the minimum scheduled monthly payment each month.
Stay Aware of Interest Accumulation
Interest starts accruing after you graduate from college (and in some cases, while you are in college), and it is affected by a variety of factors. These factors include the principal amount borrowed, the interest rate and the length of time that it takes you to repay your loan in full. By remaining aware of these factors as you begin your loan payments, you can create a plan that allows you to pay back your loans and interest in a timely manner. The accumulation of unpaid interest that is added to your loan principal is known as capitalization. Like interest, capitalization increases the amount of money that you owe overall. Mr. Scholnick sees cases every day where a default in payment can lead to capitalization that doubles and even triples the original principal debt. To avoid having to pay additional interest on top of your established interest rate, it is important to finance your student loans with the intention of being able to pay your interest and make your payments on time.
Consider Debt Settlements with Private Loans
If you received a private loan in order to finance your education, you have the option to consider a debt settlement. A debt settlement involves compromising with your loan lender to negotiate the reduction of your loan amount or the amount of payments on the loan. Because there are no loan forgiveness options available for private loan borrowers, attempting to reduce your private loan amount with your lenders can potentially alleviate the issues surrounding overwhelming student loan debt. Please note that there are tax implications in settling the debt- the IRS treats the written off amount of the debt as income!
Because there are no guaranteed loan forgiveness options, as available for federal loans, Jeff Scholnick recommends avoiding private student loans if at all possible, even if it changes your school options. You are better off with federal loans and reduced monthly payments than being harassed by lawsuits that mess up your credit for many years.
Enroll in an Income-Based Repayment Program
While debt settlements are only considered for private loans, Income-Based Repayment (IBR) programs are only available for federal loans. With IBR programs, monthly payments are calculated solely on monthly income, not on loan principle. Therefore, IBR programs are a good option for individuals with a lower income or those who are uncertain about their future income, since payments are established to suit your current financial means. This is the reason that you should only take federal loans, not private loans.
Look into Loan Forbearance and Deferment
With loan forbearance, you have the option to temporarily cease loan payments for up to one year. With loan deferment, you can choose to temporarily postpone your principal and interest payments on your student loans. Both loan forbearance and deferment can temporarily mitigate the financial burden of making loan payments on time; however, both options have consequences. If you choose to put your loan into forbearance, interest still accumulates despite the temporary cease of loan payments. In the case of loan deferment, it is important to note that qualifying can sometimes be difficult. Discuss these options with a student loan attorney, such as Jeffrey Scholnick, to learn whether they would be right for you.
Consider Refinancing Your Loans
By choosing to refinance your student loans, you can ease your financial burdens by combining multiple, smaller student loans into a single loan, which can reduce the term of the loan or lower the loan interest rate. This is a beneficial strategy for those who have good credit and a stable source of income. However, do not add a spouse or co-debtor while refinancing your loans, if at all possible
Speak to Attorney Jeffrey Scholnick of About Reducing Student Loan Debt
Collectively, student loan borrowers collectively owe 1.5 trillion dollars, and as tuition costs in the country increase, about two-thirds of college students are forced to borrow money to pay for their education. Dedicated student loan attorney Jeffrey Scholnick understands the financial stress brought on by exorbitant student loan debt and seeks to help you receive the financial freedom you need. For more information, get in touch today.