Forbes
5 Tools, Tips and Resources to Help You Tackle Student Debt
By: Donna Fuscaldo
Americans owe nearly $1.6 trillion in student debt with 44.5 million of them staring at a student loan bill each month. The average undergraduate borrower in the class of 2017 owed $28,650, but more than 2.5 million borrowers have $100,000 or more in combined undergrad and graduate debt.
As Millennials struggle to get out from under what can be suffocating debt, some are delaying the next steps in their lives, including saving for retirement, buying homes, getting married, starting families and even living on their own.
Here’s the good news: there’s help out there. From refinancing to income-based repayment plans, there are ways to manage student debt.
1. Refinancing, Consolidating Loans To Free Up Cash Flow
During the Great Recession, banks grew wary of helping college graduates refinance their existing loans. With the economy suffering, mortgages foreclosures setting records and defaults on all types of unsecured products surging, traditional banks exited the student loan lending market. At the same time, more people were returning to college in hopes of getting a degree that would bolster their job prospects. That created an opening for a new crop of financial technology startups to step up and fill the student loan refinancing void. .
Since then, business has been booming for these fintechs. Banks have taken notice and have been getting back into the refinancing market. That presents opportunities for student debt borrowers to get a better deal on their loans. With student loan refinancing, private lenders consolidate both federal and private loans into one big loan. The aim is for borrowers to get a lower interest rate on all their debt. Not surprisingly, those who have good credit and good job prospects tend to save the most from refinancing. (See: The Six Best Private Student Loans.)
Private refinancing of student loans certainly isn’t for everyone. Graduates who are employed in the public sector and/or borrowers who are already enrolled in a federal debt relief program could lose potential federal benefits from refinancing. Debt holders with questionable credit may not get approved for a refinance or pay too high of an interest rate to make it a smart choice.
The Federal government offers its own direct consolidation loan program too, but a lower interest rate isn’t part of the deal. Instead, Uncle Sam’s program enables borrowers to combine federal education loans into a single payment, with the aim of getting a handle on disparate loans. The interest rate on the loan becomes the average rate of the prior loans. But borrowers may pay less each month because the loan term gets extended. In addition, some borrowers need to consolidate to become eligible for income based repayment programs.
2. Government Backed Debt Relief Programs
The Federal government offers several programs aimed at helping reduce some of a graduate’s debt, or at making the payoff of that debt more manageable on a monthly basis.
Graduates who have monthly loan payments that are high compared to their income can get relief in the form of income driven repayment plans. With these plans, the monthly payments are capped at a percentage of the borrowers’ discretionary income. Payments can be extended to as long as 25 years, which results in the lower monthly payment.
The Department of Education offers four options. There’s the Revised Pay As You Earn program in which the payment won’t exceed 10% of discretionary income and terms are extended to twenty years. Graduate loans get terms of 25 years. With the Pay As You Earn option the payment is 10% of your income with a repayment term of 25 years. With this program, borrowers never pay more than the payment under a standard plan. For borrowers who took out loans after 2014, the income-based repayment plan caps the repayment term at 20 years and the payment at 10% of their income.
The Income-Contingent Repayment Plan requires borrowers to pay the lesser of 20% of discretionary income or what he or she would pay on a repayment plan that has a fixed payment for twelve years. Another plus of these programs: borrowers may be eligible for student loan forgiveness after the 20 or 25 year period. The remaining balance could be erased in its entirety, but it does count as income on your tax returns and will be taxed accordingly.
While income-driven repayment plans will help you manage debt, there are downsides. For starters, it will take you longer to pay off the loans, since you are paying less each month for between 20 and 25 years. With a typical standard repayment plan, you pay off your student debt in ten years. You may end up paying more in interest since you will be accruing it for an additional 10 to 15 years.
3. Student Loan Forgiveness
Even bankruptcy can’t wipe away your student loans, but the government can, in certain cases. This type of relief doesn’t happen every day but there are forgiveness, cancellation and discharge programs offered by the Department of Education for certain borrowers.
Take the Public Service Loan Forgiveness Program, or PSLF, as one example. Individuals who work full-time in a public service job can qualify for forgiveness of the remaining balance of their Direct Loans after they make 120 payments and while they are employed full-time by certain public service employers. Another government-run program is the Teacher Loan Forgiveness program, which can forgive as much as $17,500 of subsidized or unsubsidized loans for full-time teachers in low-income elementary or secondary schools who have worked there for five consecutive years. Be careful: small paperwork errors can disqualify you from the benefits of these plans.
4. Student Loan Repayment As A Perk
Outside of government programs, industry has stepped up to relieve some of the burden of student loan debt for graduates. A small but growing number of companies are offering student loan repayment as an employee benefit. These programs won’t erase all the student debt, but if you choose to work with an employer who offers assistance, it can help. There are even efforts afoot in Congress to make this sort of employer assistance tax free.
5. Digital Tools Help You Cut Student Loan Debt
Digital tools have emerged to help people pay off their debt quicker. From apps that round up purchases and pay the difference to student loans to browser extensions that give you cash back on online purchases, these tools can help pay off student debt.
ChangED, for example, automatically rounds up the purchases you make and puts the earned spare change toward your student loans. Users link a bank account and their student loans to their ChangED account. Once the account reaches $100, the app sends a payment to the student loan servicer. ChangED charges $1 per month for its service.
EvoShare is a browser extension that pays you cash back when you make purchases online from participating retailers. The cash back is sent directly to the student loan you connect to the app. EvoShare boasts 1,300 online businesses and around 8,700 stores and restaurants as partners. Pickpocket.me is another roundup app but on steroids. With the app, 10% of every dollar spent for the first $500 is automatically withdrawn from your account and paid to your student loan. The rate is automatic and can be reduced or increased on the fly. But this convenience doesn’t come cheap. The app costs $4.99 a month.
