If college were a party, then student loans are the hangover.
Unfortunately, the “hair of the dog” won’t cure this headache, but here are some ideas for managing your student loan debt.
The programs listed are not intended as tax or legal advice. They may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The programs are for informational purposes only, and should not be considered a substitute for a more comprehensive student loan evaluation.
Income-Based Repayment Programs — If your payments on eligible federal student loans are in excess of 15% of your earnings above 150% of the poverty level, you may be eligible for an income-based repayment program. Under this program, your outstanding loan balance may be forgiven after 25 years of qualifying repayment.
Another program, Pay As You Earn (PAYE), also caps repayments based on your income and will forgive outstanding federal student loans after 20 years. Under PAYE, payments must exceed 10% of what you earn above 150% of the poverty level, under a standard 10-year repayment plan.
To be eligible, you must have taken your first federal loan after September 30, 2007 and at least one loan after September 30, 2011.
Public Service Loan Forgiveness — Certain federal loans may be forgiven after 10 years of qualifying payments if you take a job with federal, state, or local government; a non-profit; or other public service organizations.
Volunteer — There are a number of programs, such as AmeriCorps, Peace Corps, and the military, in which service will accrue a benefit that reduces an outstanding loan balance in an amount that varies depending upon the program.
Pre-Pay Principal — Pre-payment of principal may help lower the lifetime interest costs of a loan. To raise cash to fund pre-payments, one idea is to ask that birthday and holiday gifts be cash to put toward pre-payments. You could also direct any raises, bonuses or overtime pay to pre-payments. If you do pre-pay principal, be sure to target the loans with the highest rate of interest.
Loan Consolidation — You can consolidate your federal loans through the Direct Loan program, or through a private lender if you have private loans. However, this may only make sense if you can obtain an overall lower interest rate.