Dealing with Student Loan Debt

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You may not have thought much about all those mounting student loans when you were acquiring them, but they eventually become due.  In 2013, the average student loan debt topped $28,000.  The level of student loan debt has now passed credit card debt in America and is only exceeded by our level of mortgage debt.  First, review where you stand and what your options are.  Start with these websites to get information about potential options:

There are many types of private and government student loans.  You may have a variety of student loans from a variety of sources at a variety of different rates.  If you are unsure about what you have, you may be able to look up your loan information at this government website:  http://www.nslds.ed.gov/nslds_SA/ .  See about consolidating your loans into one loan with one payment at one fixed rate.  Consider the tradeoff of stretching out the length of the loan to ten or twenty years.  Note, however, that while a longer term means a lower monthly payment, it also means a longer debt and more interest over the life of the loan.  Graduated payment loans are another option, allowing lower payments initially and increasing every two years, hopefully as your income does, too.

Government backed loans may have several attractive features including deferring repayment until you get a job (up to three years), basing the level of your payments upon the level of your salary (Income based repayment – see www.ibrinfo.org ), and even forgiving the remainder of your loan after twenty-five years, or working in a public service job for ten years.  Check to see if you can get a reduced rate by signing up for automatic payments from your checking account.  Don’t think about defaulting on your government student loans as they can garnish your wages, grab your tax refunds, and reduce any government benefits — and there is no time limit or statute of limitations.  On the other hand, it is much easier getting some type of relief when you really need it.  A recent relief plan is called “Pay As You Earn” and bases your payments upon your salary and family size.  It can forgive the unpaid balance after twenty years.  There are plenty of requirements, so review your options here:  www.studentaid.gov .

Private student loans account for about 15% of student loan debt.  You might be able to consolidate and refinance these.  Review possibilities at a student loan comparison site such as:  http://www.simpletuition.com/.  Sallie Mae is the largest private lender.  If you face financial difficulties and have tried the usual repayment options, Sallie Mae may work with you to provide some means of relief based upon your ability to repay including interest-only payments, reduced monthly payments, extended payment schedules, and even temporary rate reductions.

If you have difficulties working with any of your student loan lenders, you may wish to contact the Consumer Financial Protection Bureau (CFPB).  This new government agency was created as part of the reforms stemming from the 2008 financial crisis and includes an ombudsman and consumer affairs specialists to hear consumer complaints.  The biggest complaint they hear about student loans relate to negotiating relief when people face unemployment or financial difficulties.  You can contact the CFPB at their website:  www.consumerfinance.gov.

There are many programs where you can get government loan forgiveness or partial repayment in return for service.  These could be particularly attractive to graduates with large loans, have trouble finding a job, or who are interested in public service or certain careers such as in education or health.  Review these programs for details:  Teach for America, Peace Corp, AmeriCorp, federal Health and Human Services for health related fields, federal government service, military, and various state and municipal governments.

The important point is to put student loans on auto pilot.  See if you can get the monthly payment to an amount that is relative to your income and have the monthly payment automatically deducted from your checking account.  Ensure you make payments on time, but if you face difficulties, be persistent in trying to work out relief with your lender.  Note that up to $2500 in student loan interest may be tax deductible (2013 adjusted gross income less than $75,000 for singles, $150,000 if married).

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