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5 Ways to Cut (or Eliminate) Your Student Loan Burden

Posted by Tiffany Sanders, J.D.

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Big numbers make big news, so it’s no surprise that media coverage of the student loan crisis is loaded with statistics like the ones below–big numbers that paint a daunting picture for a generation of student loan borrowers, for the future of higher education in the United States, and even for the national economy. We’re told that everything from the housing market to job options and entrepreneurial efforts is hampered by this generation’s unprecedented debt burden.

Some of the highest-impact statistics include:

  • Total U.S. student loan debt exceeds $1 billion and continues to increase.
  • Student loan debt has increased by 60% over the past five years.
  • The class of 2015 has the highest average student loan debt in history and the highest percentage of graduates carrying student loan debt.
  • Nearly seven million student loan borrowers haven’t made a payment in a year or more.

It turns out, though, that the big numbers don’t tell the whole story. It seems it doesn’t take a high debt burden to financially cripple a new graduate.

According to the Department of Education, the median student loan debt among those who default is just $8,900, and the average is $14,500—much lower than the debt carried by the average graduate. The two groups the Federal Reserve says have the highest delinquency rates—those who didn’t earn a degree and those with only a certificate or associates degree—carry an average of only about $12,500 in student debt. And, that doesn’t account for the millions of additional borrowers who are keeping payments current but crippled in other areas of their financial lives by that disproportionate obligation.

Undoubtedly, many factors combine to determine just how much impact student loan debt has on your life. At the core, though, is a relatively obvious point that’s highlighted by the extremely high default rates (43.5%) among student loan borrowers who leave school with no degree: the amount of student debt you can manage depends in large part on your income and other expenses.

If your income is low relative to student loan payments, that may seem an insurmountable obstacle. But, some good research and creative thinking may offer more options than you’d expect.

1. Employer Assistance

A growing number of U.S. companies are recognizing the value of student loan assistance when it comes to attracting and retaining employees. Although the Society for Human Resource Management says only about 3% of employers are offering student loan benefits today, they include some well established businesses like Fidelity Investments and Pricewaterhouse Cooper.

David Aronson, founder of Peanut Butter, a company that assists companies with creation and administration of student loan benefits programs, says this is the type of benefit today’s employees are looking for. With student loan payments that often exceed new car payments, they don’t need gym memberships and free lunches—they need help managing that debt.

Student loan assistance aids employee retention.

Peanut Butter’s benefits study showed that employees were twice as likely to stay 6 years or more if the employer offered student loan assistance.

If your employer doesn’t offer this type of benefit, consider looking for one that does—or, pitch your current employer.  A recent study sponsored by Peanut Butter provides some strong selling points: 85% of respondents said a student loan benefit could tip the scales when choosing a job, and respondents projected staying at a company 36% longer if student loan assistance was available.

Thus far, student loan assistance isn’t tax-free like tuition assistance, but the concept is relatively new. With tens of millions of borrowers in default, the federal government has a powerful incentive to make it easy for employers to help keep those accounts up to date. And, creative solutions are emerging as well. In March, Student Loan Genius rolled out a program which allows employers to make 401k contributions for employees based on student loan payments. Though these contributions won’t directly reduce the student loan burden, it does solve a common problem for Millennials carrying student loans—the inability to make payments and save for retirement at the same time.

2. Student Loan Forgiveness Programs

You’re undoubtedly aware that student loan forgiveness programs exist, but may wrongly assume that they don’t apply to you. While the federal public service program is the best known, that program encompasses more careers than most people realize, including law enforcement, public interest law, public health, early childhood education and public library work.

Public Service Loan Forgiveness is available for public safety officers.

Police and other public safety officers may qualify for student loan forgiveness.

Under the federal Public Service Loan Forgiveness (PSLF) program, the borrower is generally required to make 120 qualifying payments and at all relevant times be employed by a qualifying organization. It’s important to note that it is the organization and not the role that qualifies a borrower under the PSLF. Thus, a person working full-time as a software engineer or accountant for a qualifying organization will still be eligible for the program. The major limitation on this program is that only Direct Loans qualify.

In addition, many states have one or more student loan forgiveness programs with varying requirements. Some of these programs are similar to the federal program, while others are responsive to particular shortages or underserved areas within a state. For example, the state of New York recently announced a new program under which the state would make two years of student loan payments for graduates of New York colleges living in the state who earn less than $50,000/year.

 

3. Consolidation and Refinancing of Student Loans

The most important thing to note about consolidation and refinancing is that they differ in very important ways. Direct Consolidation preserves most of the options related to federal student loans, such as deferment and income based repayment programs. In some cases, Direct Consolidation will allow you to roll federal loans that wouldn’t otherwise be eligible into the PSLF program. Though Direct Consolidation in itself usually won’t make a significant difference in payment amounts, various repayment options are available.

The fact that Direct Consolidation generally doesn’t offer a meaningful reduction in payments makes private “consolidation” attractive to many borrowers. Rather than rolling together several government loans into one as Direct Consolidation does, private refinancing turns federal student loan debt into private debt. In addition to the potential for lowered interest rates (and, thus, payments), one big selling point for private refinancing is that private student loans and others that don’t qualify for Direct Consolidation can be included. However, turning federal loans private means the loss of a variety of protections for student loan borrowers, including the ability to choose among multiple repayment plans, and the possibility of deferred payments and forbearances.

The bottom line: proceed with caution when consolidating or refinancing your loans. Each approach offers some benefits, but may also create limitations that you should understand fully before making the move. And, private refinancing terms, including interest rates, may vary significantly from one lender to another. If you’re considering refinancing, do your homework thoroughly.

4. Relocation

Changing cities (or even states) may seem like an extreme solution to your financial problems, but consider the possible benefits: relocating to an area with lower unemployment, taking a good job in a city with a low cost of living or finding a city with incentives for people with your area of expertise can change your overall financial picture—and, changing other aspects of your financial life can mean freeing up dollars to accelerate your student loan payments and move closer to financial freedom.

Several U.S. cities with declining or aging populations offer student loan assistance, and often other incentives as

Many cities offer student loan and other financial assistance.

Detroit is one of many U.S. cities offering incentives for residents.

well. The options range from tiny Midwestern towns to struggling cities such as Detroit, and the programs are diverse. Many areas of Kansas offer up to $15,000 in student loan assistance and exemption from income tax for five years. Niagara Falls, New York incentivizes college graduates to live in particular areas of the city. New Haven, Connecticut’s revitalization efforts include assistance for first time home buyers, with additional funds available for those in certain professions. And, Chattanooga, Tennessee is encouraging programmers to move to the area with its “Geek Move” program.

If you don’t have strong ties to your area, the options are worth researching, but make sure you look at the big picture. Remember that the bottom line is income minus expenses. Gaining incentives or a higher rate of pay while also increasing expenses won’t net the result you’re looking for. If you’re considering making a move to improve your financial situation and help you gain control over student loan debt, research is the name of the game.

5. Consider Short-Term Changes

You probably went to college with a vision for the future, and spending a couple of extra years living with your parents or taking on a job that has nothing to do with your ultimate goals probably wasn’t a part of it. But, sometimes a short-term compromise can offer long-term gains. Take the time to do the math. If you delayed the lifestyle you’re aiming for or the entry-level step toward your dream job for 2-3 years, focused hard on making money and cut expenses to the bone, how much difference would it make in your financial freedom from there on out?

It takes discipline and a clear plan, but the payoff lasts a lifetime. Being broke because your student loan payments are dominating your life is demoralizing and can drag on for a decade or even much longer. Americans aged 50 and older currently owe more than $200 billion in student loan debt.

In contrast, taking a hard-core, warrior-style approach to paying off those loans can be empowering, even if it means taking on a part-time job, keeping your college roommate and giving up lattes for a couple of years. The success stories are daunting, but inspirational, including this young woman who paid off $28,000 in student loans in three years and this one, who knocked out more than $40,000 in less than 18 months. The extreme approach isn’t for everyone, but if you can make the commitment, the prize is liberating yourself from student loans that will follow your peers and limit their options for years to come.

A Word of Warning about Student Loan Assistance

Wherever there are people feeling trapped and desperate, there are also predators. A primary theme throughout this round-up of possible solutions has been “do your homework,” and that’s just as important when you’re turning to a lender or an outside agency for help. Don’t rely on a stranger to have done the research for you. Just last week, the Consumer Financial Protection Bureau acted to stop a San Diego-based “student aid” organization from charging borrowers fees for federal benefits that were readily available at no cost. They’re not the only bad actors in the industry, and this isn’t the only way predatory organizations can take advantage of uninformed student loan borrowers.

The Bottom Line on Student Loan Debt

Student loan debt can be a heavy burden that may feel insurmountable—but that’s a feeling, not a fact. If you think creatively, do your research and are ready to take radical action, you can take control in the way that works best for you, whether that’s lowering payments through an income-based program so that you can keep your payments on track while maintaining a reasonable standard of living or going the opposite route, setting aside other goals in the short term to maximize payments and eliminate the burdens of student loan debt permanently.

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Posted on April 5th, 2016


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