pay off student loan

Student loan debt has reached epic proportions and is on the rise. So-called “super-borrowers” are racking up student loan debt to the tune of $100,000 or more for the sake of an education. While many of them are taking on six-figures in loans to earn an MBA or get through law school, others are using the money to fund their undergrad experience at pricey private universities.

When you consider that 20-somethings face one of the toughest job markets in history, it’s a big gamble to make.

Figuring out how to organize and pay student loans when the amount you owe is the equivalent of a mortgage can be overwhelming, especially if you’re struggling to get by on an entry-level salary.

Learn what you can do to ease the financial burden and boost your motivation to keep chipping away at the debt.

Consider Income-Based Repayment Options

If you owe federal student loans, you may be able to get some temporary relief in the form of an income-driven repayment plan. Unlike the standard plan, which caps the repayment period at 10 years, these plans allow you up to 25 years to pay back what you owe. If you haven’t paid off the balance by then, you may be able to have the rest of the debt forgiven.

How payments are calculated

Income-based repayment limits your monthly payment to 15 percent of your discretionary pay and your payments can go up or down as your income changes. This option is available for students who owe Direct, Stafford, PLUS or consolidation loans. The Pay As You Earn Program calculates your payments as 10 percent of your income and payments are stretched out over 20 years. There are also Income Contingent and Income Sensitive plans that have similar terms.

If you’re just starting out in your job and not making the big bucks yet, choosing an income-driven option can make your payments more manageable until you start earning more. The longer you stay on the plan, the more you’ll pay in interest for the loans but it’s a better alternative than default.

Note: Keep in mind that if you end up getting some of your loans forgiven once the repayment period ends, you may have to shell out income tax on the difference.

Streamline Private Student Loan Payments

Students often look to private lenders to cover the gap when they’ve exhausted their federal loan borrowing limits. While doing so can give you the money you need to finish up your degree, it usually comes at a premium since the interest rates tend to be much higher. Private lenders don’t offer income-driven repayment plans so if you’re struggling to keep up with the payments each month, your balance could quickly balloon even higher.

If you took out multiple private student loans, consolidating them and refinancing to a lower interest rate can create some breathing room in your budget. You make a single payment each month and you can reset the loan term so the amount fits with what you can afford to pay. The amount you can consolidate usually varies by lender, but some offer limits as high as $250,000.

Consolidate debt to pay less interest

When you’re shopping around for a private student loan refinance deal, you want to pay close attention to the terms of the loan. You’ll have to decide whether you want a fixed or variable rate for the loan and the one you choose determines how much consolidating or refinancing really costs you in the long run.

Fixed rates tend to be higher but your payments stay the same over the life of the loan. Variable rates are usually lower but the amount you pay each month or the number of payments you’re required to make may fluctuate.

You can use a variety of refinancing methods, including personal loans, credit cards, student loan refinancing options, and more.

What Happens When You Have Trouble Paying Off Student Loans

1. Forget about bankruptcy protection.

You can resort to bankruptcy if you run your business into the ground, underfund your pension or engage in a messy divorce. But you can’t turn to bankruptcy if you owe a student loan. Congress in its wisdom specifically restricted that common avenue of debt resolution. Indeed, student loans are considered the most difficult debt in which to qualify for a hardship status under the law.

2. Your lender can go after your tax refunds

The federal government has the authority to tag your tax refund, no matter how hard you have tried to pay off your loan. In fact, in some cases, it is entitled to go after your retirement funds by docking the money the government sets aside for your special Social Security account.

3. Forget about borrowing your way out of debt

Your inability to repay student debt can impact your credit score, which in turn impacts your ability to borrow money for any purpose, including obtaining a mortgage for your home or a loan for your small business. You can’t borrow your way out of the hole. Some employers even weigh credit scores in making hiring decisions, meaning it’s more difficult to get a good job to pay off the loan.

4. In some cases, employers can help out.

This is especially true in professions such as medicine, law or engineering in which a high level of education is a requirement. The hiring institutions understand that it costs money to gain the expertise required for the job. So they have programs that can ease the pain of repayment or build a repayment mechanism into your salary package.

Small Steps Lead to Success

Being knee-deep in student loan debt has been linked to poor health and an overall decrease in quality of life and there’s no doubt that it can take a toll on you emotionally and mentally. The financial pressure caused by trying to pay student loans has many grads putting off major life moves, like buying a home, getting married or having kids.

If you’re staring down six figures in loan debt, it’s tempting to give up on ever making any progress but that’s not the best mindset to have. You have to consider what kind of sacrifices you’re willing to make to pay those loans off faster. For some, that means moving back home with Mom and Dad or living with multiple roommates. For others, it could be picking up a part-time job or starting a side hustle in addition to their regular nine to five gig.

Instead of trying to eat the elephant all at once, work on making progress towards smaller goals. Challenge yourself to see how much of the debt you can dump in six months. Treat yourself to a small reward every time you pay off another $5,000. The more you’re able to psych yourself up and make your repayment efforts a game, the less it seems like a crippling financial burden.

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  • RoTimi Akinmoladun

    Very good advice. I am hoping to find more articles about this very topic. As a “Super Borrower”, there are times when it just seems so tempting to just throw in the towel especially given the amount of years that this may ultimately take to pay off the balances.

    However, “where there’s a will, there’s a way”. I’m determined to find “the way” to getting this debt completely paid off 1 day. Articles such as this one keep me encouraged.