The Comprehensive Guide to Paying Off Your Student Loans

By
Matt Valentine
,
September 7, 2018

Student loans are the gateway to higher education for millions of bright young minds.

 

Everyone from aspiring doctors, engineers, and business experts to lawmakers and scientists require financial assistance to make their careers in higher education—and eventually their dream jobs—a reality.

 

But the truth is, when comes time to pay back those student loans, not having all the necessary information can make them feel overwhelming.

 

But don’t worry—they don’t have to be.

 

Whether you are a young professional or the proud parent or grandparent of a recent graduate, here is something important to remember:

 

There’s a lot you probably don’t know about that student loan.

 

…And we’re not talking about mildly interesting bits of information.

 

In fact, information affecting the terms and conditions of your very loan itself can help you find ways to make paying back your loan easier and more flexible. You may even be able to reduce the balance on your loan or get it discharged altogether.

 

Suffice it to say, getting to know your student loan inside and out is the best way to take full advantage of your loan repayment options.

 

This guide is designed with one purpose in mind:

 

To give you a comprehensive understanding of your student loan to empower you to make the most of all the options available to you.

 

This guide will empower you with the knowledge to:

  1. Understand your student loan better.
  2. Increase awareness of all your options to make it easier and quicker to repay your student loan.

 

So…

 

Let’s jump in!

Knowledge Is Power: What You Should Know About Your Student Loan

 

Having student loans hanging over your head can be scary, but it doesn’t have to be. There are a lot of amazing options that can help, and many of those options take no more than a few minutes to implement.

 

But before you can utilize these options, you need to know the specifics of your loan better.

Getting to know your student loan

 

When was the last time you flipped through your loan documents? If you’re like most people, probably never. Right?

 

No one blames you—who wants to read through dozens of pages of dry and overly complicated text? But remember—knowledge really is power in this case. So, the better you know your student loan, the more power you will have to resolve it.

 

Before reading the following points, make sure you have your loan in front of you, so you can focus on information specific to your loan type, repayment plan, deferment policy, and interest rate.

 

Ready? Here are a couple of questions to help you focus:

 

●     Is your interest rate too high?

●     Did you know you might be able to negotiate a lower rate?

 

Your loan may also include terms and special conditions that can make it much easier to repay or even pay off entirely.

 

Keep your own loan on hand to identify whether a particular term or condition is available to you. Then, examine those options to find one that might be right for you.

Navigating your student loan information

 

What if you no longer have your loan documents or even your student loan information? Fortunately, your student loan information is easy to find. Here’s how:

 

●     For federal student loans: Create an account at the Federal Student Aid (FSA) website at www.nslds.ed.gov/npas/ to locate your loan.

●     For private student loans: Your lender will be listed on your credit report. By law, you’re allowed one free credit report annually, which can be obtained at www.annualcreditreport.com. (This site is the only website approved by the federal government to offer free credit reports.)

Deferment, forgiveness, and assistance—Oh, my!

 

Now let’s jump into the good stuff!

 

Your loan includes all kinds of useful terms and special clauses that you may never have noticed. Here are a few examples to give you a better idea of the kinds of programs and options available to you:

 

●     Student loan deferment occurs when your loan servicer offers a grace period during which loan payments are frozen. Most loans have an automatic six-month deferment after the student graduates; however, academic deferment can also be used if you go back to school.

●     Student loan forgiveness occurs when part or all of a student loan balance is erased (“forgiven”).

●     Repayment assistance is a program that offers a monetary amount that can be applied towards repayment. Repayment assistance requires meeting certain criteria.

 

These are only a few options of many that maybe available. In addition, outside programs, such as consolidation and refinancing, can allow you to lower your student loan balance.

More good news: Refinancing student loans

 

Student loan debt is just like other debt, and that’s good news for you!

 

Most people don’t know that student loan debt works exactly like other forms of debt. Why is this important?

 

Because student loan debt can be refinanced.

 

You can approach another lender with your student loan and refinance for either a lower monthly payment or a reduced term, so you can pay off your loan faster.

 

Student loan refinancing is one of the easiest and most powerful programs available to anyone looking to eliminate student loan debt once and for all. Refinancing can be used in conjunction with other options, such as repayment assistance. Remember that more than one option may apply as you’re taking everything into account.

Yes, you can refinance more than once

If you’ve refinanced once before, you can refinance your student loan again.

 

A second refinancing may be especially relevant if your credit has improved noticeably since you last refinanced—you maybe approved for another reduction in your monthly payment, or to supercharge your payoff efforts to get rid of your loan sooner rather than later.

 

Later sections examine these options in greater detail. For now, take some time to get to know your student loan better by learning about the different types of student loans and the various types of repayment methods.

Recap: Getting to know your student loan

 

●     The more you know about your student loan, the better off you’ll be.

●     You can obtain student loan information from www.nslds.ed.gov/npas/ for federal loans, or, for private loans, by getting your free credit report at www.annualcreditreport.com/.

●     There are several useful potential options for managing repayment, such as student loan deferment, forgiveness, and repayment assistance.

●     Student loan debt is like any other debt—it can be refinanced to save time and money. 


Types of Student Loans

 

Now that we’ve touched on some important information about your loan, this section will identify what type of loan you have, what type of repayment plan you have, and why it matters.

Federal student loans

 

Federal student loans make up the lion’s share of all student loan options. Chances are, your student loan is a federal loan.

 

Federal loans are separated into two types:

  1. William D. Ford Federal Direct Loan Program. The largest of the two federal student loan programs, this program includes various types of     federal loans such as Direct Subsidized, Unsubsidized, PLUS, and Consolidation loans.
  2. Federal Perkins Loan Program. These loans are offered directly from the school the student attended. If your loan was issued from the university itself, you have a Perkins loan. (In September of 2017, the Federal Perkins Loan Program was ended. However, if you received your loan before then, you could have a Perkins loan.)

 

If you have a federal student loan, that’s great news. Virtually all of the special options we’ve touched on so far, such as student loan deferment and forgiveness, are available only to federal student loan holders.

 

Here are the four types of direct federal loans:

Direct subsidized loans

One part of the Stafford Loans program, direct subsidized federal student loans were created specifically for undergraduate students.

 

The annual cap for direct subsidized loans is between $3,500 and $5,500 annually for the first through the third years, with a cap of $23,000 for dependent students and $65,500 for independent students. Note that those are the maximum amounts you can take out, so if they don’t cover the cost of school, you’ll have to find additional funding elsewhere.

 

The limits on subsidized loans are strict; however, these loans all share one unique advantage: the federal government will cover your interest charges while you are studying, potentially saving you huge amounts during repayment.

 

Direct unsubsidized loans

The second loan type of the Stafford Loans program, direct unsubsidized loans won’t cover your interest like subsidized loans will. However, the caps are higher—you can borrow between $5,500 and $12,500 as an undergraduate and up to $20,500 per year as a graduate or professional student.

 

It’s important to note that subsidized and unsubsidized student loans share the same maximum borrowing amount—up to $31,000 for dependent students, $57,500 for undergraduate independent students, and $138,500 for graduate or professional students. You could have a combination of both loan types, but the cap will not change.

Direct PLUS loans

Direct PLUS federal loans are primarily for parents of undergraduate students. These loans cover the cost of their child’s education (the loan is in the parent’s/grandparent’s name). PLUS loans are available to graduate students as well. Part of the benefit of direct PLUS loans is that they can be used to cover the entire cost of education.

Direct consolidation loans

Direct consolidation loans allow you to consolidate multiple forms of federal student loans into one easy payment, making loan repayment a much easier process.

 

Using multiple forms of federal funding to make up the entire amount a student will need to attend the school of their choice is common, so this federal loan program helps simplify things.

Federal Perkins loan program

Finally, the Federal Perkins loan program is aspecial type of federal loan that was offered to students with great financialneed.

 

Until recently, they were the ideal financing option because they were subsidized and had a low interest rate. In 2017, the final year this loan type was available, the total amount that could be borrowed was $27,500 for undergrads and $60,000 for graduates.

State student loans

Although rare, some state financial institutions have begun offering their own type of state student loans. Some states that offer loan programs so far include:

 

●     Massachusetts: Massachusetts Educational Financing Authority (MEFA)

●     Connecticut: Connecticut Higher Education Supplemental Loan Authority (CHESLA) and the CT Student Loan Program

●     Texas: The Hinson-Hazlewood College Student Loan Program, a combination of the CAL and BOT programs (private loan programs which are specific to Texas)

 

Benefits of state loan programs depend on the particular program; however, several have fixed interest rates that are either comparable to—and in some cases better than—the best federal student loans.

Private and alternative student loans

A common option for those who can’t get the full amount they need from federal loans, private or alternative student loans work much like any other type of loan. However, unlike federal loans, they require credit for approval.

 

Private loans are often issued by traditional lenders, such as banks and credit unions. Alternative lenders are private companies. As a result, it’s typically very easy to determine who your lender is.

 

In both cases, everything from the interest rate to the repayment terms are wholly decided by the lender, so details will vary greatly.

 

Tip: Private student loans may include interest rates that vary over time, so it’s important to review your latest statement or call your loan servicer for your current interest rate.

Recap: Types of student loans

 

●     There are many different types of student loans. Taking time to determine what type of loan (or loans) you have can help you determine what options you can take advantage of and the best course of action for repaying your loan.  


Defaulting on Student Loans: Facts and Myths 

 

If you’ve gone into default on your loan before, you know it’s not a fun experience.

 

This section covers important information to help you understand that defaulting doesn’t have to be the end of the world.

 

Are you faced with any ofthese dilemmas?

 

●     I have defaulted and need to get back on track.

●     I am falling behind and at risk of defaulting.

●     No, I’m making payments on time and not at risk, but I still worry.

 

If any of these situations apply, you should know a few things about the default process, your rights, and how to rehabilitate your loan if it goes into default. Whether you are in default or at risk of defaulting on your student loan, you have options. You should know what they are, so you can get yourself back on track—and stay there.

Defaulting on student loans: What happens next?

 

If you haven’t made a payment on your student loan in nearly a year, you may be in default. A typical student loan falls into collection if a payment isn’t received for over 270 days.

 

The goal is to keep your loan out of collections and on the road to repayment. We’ll examine repayment options in later sections; however, if your loan is already in default or at risk, understanding the process of resolving this problem should take priority.

Student loans in collections: What are your rights?

 

First, when you default on your student loan, your loan may be placed into collections, just like any other form of debt.

 

What exactly does that mean? A few things. Most notably, the collection agency will begin trying contact you to collect the debt. As a result, you should understand your rights to avoid being taken advantage of. When your student loan is in collections, a debt collector cannot:

 

●     Call you repeatedly or continuously, especially in the mornings and at night.

●     Call you at work (if you’ve asked them not to).

●     Contact anyone in your network—including family, friends, or co-workers—regarding the debt.

 

In addition, the debt collector is required to:

  1. Send printed collection notices regarding the debt to your place of residence.
  2. Cease contact if you’ve requested that they stop.
  3. Verify all debts in dispute.

You’ll likely never have to worry about debt collectors violating your rights, but if you believe that the company attempting to collect your student loan debt has committed any acts that constitute illegal collection practices, consider contacting a lawyer that specializes in student loan debt. A legal expert will help determine whether the company violated your rights and help you take the necessary legal action.

 

Regardless, if your loan has fallen into default and is with a collection agency, focus on taking care of the debt, not just managing it—remember that a student loan in collections can lead to wage garnishments and tax refund deductions if you ignore it long enough.

 

Fortunately, there are several options for rehabilitating your student loan and getting it out of collections.

Rehabilitating defaulted student loans: What are your options?

 

If you know you’ve defaulted, contact your loan servicer as soon as you can. Depending on your loan servicer and loan type, they can either help you directly or provide you with the contact information of the collection agency where the loan has been assigned.

 

Tip: For those with federal student loans, use MyEdDebt.ed.gov (managed by the Department of Education) to locate your loan servicer.

 

Once you’ve found and contacted your loan servicer, they will typically provide you with a few options:

 

  1. Student loan rehabilitation: Rehabilitation involves negotiating a new payment plan with the Department of Education. Rehabilitation isn’t available for every type of student loan, but if this option is available, you should probably take advantage of it.
  2. Student loan consolidation: If you have more than one student loan, consolidation allows you to combine all your loans into one lower monthly payment.
  3. Pay in full: We know—who on Earth can immediately pay their loan in full after defaulting? As unreasonable as it sounds, full repayment is still an     option, and you can be sure your loan servicer will offer it.

 

Keep in mind that these options are typically only available with federal student loans. If your student loan is from a private or alternative lender, please read on.

Defaulting on private or alternative student loans: What are your options?

 

Alternative lenders have fewer regulations restricting their ability to offer you repayment options; however, the absence of federal funding also means there are fewer official options in place to help you rehabilitate your debt.

 

If you have a private student loan in default, contact the lender to discuss options for negotiating either a lower monthly payment or a settlement on the entire debt.

 

If you’re confident in your negotiation skills, you can do this yourself and avoid the expense of paying for assistance. On the other hand, if you’d prefer expert assistance, you can hire a student loan attorney to negotiate on your behalf.

Avoiding debt reduction scams

 

Be careful about making emotionaldecisions when your debt is in default. t’s easy to get tricked intosomething you wouldn’t typically agree to when you just want to get out ofdefault. Always remember that there are several options for rehabilitating yourloan.

 

More importantly, remember that in the current environment there has been an increase in efforts by sketchy student loan law firms who claim they can negotiate your debt down—and then just take your money and run.

 

The single biggest red flag to watch for:

Fraudulent loan servicers who ask you to cease paying the lender and instead start paying their firm directly. These firms are pretending to act as legitimate loan consolidators—don’t be fooled.

Avoiding default: What are your options?

 

What if you’re not yet in default, but you’re worried you may default soon and want to know what you can do?

 

If you’re having a hard time paying your monthly loan payment, contact your loan servicer to talk about options. Ultimately, they don’t want the loan to go to collections. Defaulted loans involve risk and potential loss, so they will be more interested in helping you find a way to get back on track. Often, by taking the initiative to contact your loan servicer before going into default, you will be in a better position to take advantage of a loan rehabilitation equivalent or consolidation and avoid the loan dropping into collections and affecting your credit.

Recap: Student loans in default

 

●     If you default on your student loan, it will be placed into collections after 270 days without payment.

●     If you default on your loan, you still have options both before and after defaulting, such as loan rehabilitation and consolidation.

●     If you have a private student loan, contact your lender to negotiate a new lower monthly payment.


Repaying Student Loans: Types of Repayment Plans

 

Now that we have covered the different types of student loans, this section will examine something arguably more important: your repayment method.

 

How you handle your student loans can vary drastically depending not only on which type of student loans you have, but also on the repayment method you are using.

 

If you don’t like your repayment plan, or believe you can do better, the end of this section discusses how to change your repayment plan.

 

But first, let’s examine the “standard” or basic repayment plans: standard, graduated, and extended.

Standard


As you might expect, the standard payment plan is the most common. The standard payment plan is also most similar to a traditional (non-student) loan repayment plan. This repayment plan is available for all types of loans.

 

Typically, minimum monthly payments with a standard repayment plan are $50. The loan is designed so that you can make the same payment every month for 10 years to pay off the loan in full.

Graduated


A graduated payment plan has a lower monthly payment to start; however, monthly payments grow over time. You will end up paying more with a graduated repayment plan over time, with increases roughly every two years, than you will with a standard repayment plan. Monthly payments cap at no more than three times the original starting monthly payment.

 

Like standard repayment plans, this plan is also available for all loan types and is designed to pay off the loan within 10 years.

Extended


The third “basic” repayment plan, extended plans are exactly what they sound like: the duration of the loan is extended for up to 25 years to make it easier to pay off the loan.

 

This type of repayment plan is useful if you cannot afford the monthly payment of either a standard or graduated plan. Monthly payments are designed to be lower than for either a standard or graduated repayment plan, but you’ll pay more over the life of the loan.

 

Keep in mind that you must have more than $30,000 in outstanding direct loans to qualify for an extended plan.

Income-driven repayment plans: What you should know


Now, it’s time to talk about income-driven repayment plans.

 

These plans are distinctly different from “typical” repayment plans because they’re designed to be easier to pay by considering your discretionary income.

 

In addition, these plans are the best repayment plans if you want to seek student loan forgiveness, which we will discuss later. If this sounds like your option, don’t attempt to pay more into your loan sooner; you could actually hurt your chances of being approved for forgiveness.

Income-Based Repayment (IBR)


An Income-Based Repayment plan offers a lower monthly payment in the event of documented financial hardship. IBRs are available to everyone except parents who are PLUS loan holders.

 

The IBR plan is based on your discretionary income, so payments can and will fluctuate over time. This flexibility makes it easier to stay on track when compared to typical repayment plans that do not adapt to your financial situation.

 

Tip: Your Income-BasedRepayment (IBR) monthly payment will be either 10% of your discretionary income if you’re a new borrower or 15% if you’ve borrowed before.

Pay-As-You-Earn (PAYE)


Pay-As-You-Earn (PAYE) is similar to an IBR in almost every way. The PAYE is based on 10% of your discretionary income. Your monthly payment is calculated using the same method, but parents who are PLUS loan holders may also qualify.

 

What differentiates this repayment plan is that it considers the total borrowed amount even if your other loans do not utilize this repayment method. By contrast, the IBR only considers the amount borrowed for the loan it is being used to repay. Thus, your PAYE monthly payment could be lower than an IBR payment if you have multiple loans.

Revised Pay-As-You-Earn (RePAYE)

A Revised Pay-As-You-Earn (RePAYE) repayment plan is almost identical to the PAYE plan.

 

Monthly payments are based on 10% of discretionary income; however, a RePAYE plan extends the amount of time to repay the loan, so it can offer even lower monthly payments and make it even easier to manage repayment.

 

This repayment plan is not available to parents holding PLUS loans or to Perkins Loan holders.

Income-Contingent Repayment (ICR)


The final income-driven repayment plan, Income-Contingent Repayment (ICR) plans are specifically designed for those who do not qualify for either the IBR or PAYE plans.

 

In addition, there are two major differences between the ICR and the RePAYE plan:

 

First, payments with the ICR plan will be larger than with other income-driven repayment plans, and will be calculated as the lesser of:

●     20% of your discretionary income, or

●     What you would pay on a fixed repayment plan over 12 years, adjusted based on your income.

 

Second, the ICR is the only income-driven repayment plan available to parents who hold PLUS loans; however, access to the ICR requires that borrowers first consolidate outstanding loans into a Direct Consolidation loan.

Perkins Loan Program Repayment

If you have an old Perkins loan, repayment plans work differently because you’re borrowing directly from the university. To learn about your repayment plan and additional options for repayment, contact your school directly.

Changing your repayment method: Is this the right choice for you?

 

Now that we’ve covered the various types of repayment methods, take some time to answer this question:

 

Should I change my repayment method or keep it as-is?

 

First, use the Repayment Estimator at www.studentloans.gov to determine which plans you’re eligible for based on your loan type (and other factors) and to determine your monthly payments based on various repayment plans. 

 

When you are done, contact your loan servicer or lender and ask about options for changing your repayment plan. Armed with information, you’ll make a better, more informed decision and know if your current loan servicer is giving you the best rate. If not, thanks to refinancing, you can always go elsewhere.

 

Deferring Payments on Your Student Loan

 

So far, we’ve examined options for what to do if and when you default on your student loan, so you can rehabilitate it and get back on track.

 

We’ve also discussed getting to know your student loan, some useful options to help you find more flexibility in repayment, and the various types of student loans and repayment plans.

 

As you can see, just changing your repayment plan can have a huge impact on your ability to take control of your student loan. But there are additional options that you might be able to take advantage of—deferment, which was mentioned earlier, and forbearance, which was not.

Student loan deferment

Student loan deferment allows you to press the “pause” button on loan payments. Again, loan servicers typically offer a 6-month grace period after graduating to give new graduates enough time to acquire a position with their new degree.

 

What you might not know is that deferment can be used to address other situations.

 

If you lose your job or have trouble making payments for another qualifying reason, contact your loan servicer. Depending on what your loan stipulates as a qualifying reason, you may get just enough room to breathe to get back on your feet without the extra stress of making loan payments.

 

If you request a deferment, you should probably also consider how to reduce your monthly payments, so that when you resume, you will find it easier to stay current.

Applying for student loan deferment

 

Applying for a deferment of your student loan is a straightforward process.

 

Generally, you should use the same steps for both federal and private student loans; however, private lenders decide the exact terms behind deferment policies.

 

First, identify a deferment program that best fits your situation. There are many plans out there. Here’s a short list of the most common:

 

●     Economic Hardship Deferment Request: Requires enrollment in some sort of government assistance program.

●     Parental Leave Deferment Request: Great for soon-to-be or new parents who were enrolled in school for at least six months prior to applying for deferment.

●     Unemployment Deferment Request: For those who are unemployed, actively looking for employment, and can prove they’re part of an employment agency.

●     Parent PLUS Borrower Deferment Request: A program specific to parents with students who are attending an eligible school full-time.

●     In-School Loan Deferment Request: Must be enrolled in one of the listed qualifying schools a minimum of part-time.

●     Public Service Deferment Request: Must be active duty in one of the branches of the armed forces.

 

If you belong to a qualifying group, here’s how to apply for student loan deferment:

 

  1. Call to see if you qualify: Before taking the time to complete paperwork, make a quick phone call to your loan servicer or lender to see if you     qualify for deferment. It should only take a few minutes and will save you time.
  2. Download and review the application: Take a few minutes to review the application, so you know what you’re agreeing to. Be clear on the     qualification requirements and on any other potentially important details.    
  3. Complete and submit the application: Once you’ve taken the necessary precautions, all that’s left to do is complete and submit your application.

 

Here are some additional tips:

 

●      Keep in mind that interest continues to accrue while you’re in deferment unless you have a subsidized loan. 

●     Take a minute to review your current interest rate, whether it will be the same while in deferment, and how much the deferment period will add to your balance in interest. If deferment is not worth it, consider other options.

●      Remember also that deferment qualifications are upheld by the federal government, so if you qualify, your loan servicer is required by law to approve you. 


Student loan forbearance 

Student loan forbearance is similar to deferment; however, forbearance differs in one major way:

 

●     Deferment is based on the terms of the loan, which you must qualify for.

●     Forbearance is an unofficial negotiation between you and the lender, typically based on a hardship.

 

Although these strategies appear to be virtually the same, deferment is entirely dependent upon the terms of your loan, whereas forbearance is not. If you can’t qualify for deferment based on your loan terms, you might be able to negotiate a forbearance to give yourself the time you need. Typically, forbearance is granted for 1-year blocks of time.

Recap: Deferring payments on your student loan

 

●     Federal student loans allow a 6-month grace period after graduation.

●     Student loan deferment allows you to pause loan payments for a period of time, as long as you meet certain qualifications.

●     Student loan forbearance is different. Deferment is based on the loan’s terms, which you must qualify for; forbearance is a negotiation between you and the lender based on a hardship.

●     Interest continues to accrue while in deferment, unless you have a subsidized loan.


Reducing or Eliminating the Balance of Your Student Loan: Federal Programs and Other Options

 

Now, it's time to dive into some lesser-known federal programs that can help you reduce—or even eliminate—your student loan.

 

These options include:

 

●     Student loan rewards

●     Student loan forgiveness

●     Repayment assistance programs

●     Student loan discharge

 

Each of these options can help you eliminate your student loan for good. However, not everyone qualifies, and availability depends on each borrower’s particular situation and loan terms. Even if none of these options applies to your situation, there is still a lot you can do to make repaying your student loan easier.

 

First, the following federal programs can make repayment easier:

Student loan rewards

Although not a widely used option, student loan rewards offer valuable interest rate deductions and even cash back for performing certain tasks once repayment begins. Examples of such tasks include:

 

●     Signing up for paperless billing

●     Enrolling in auto-debit for your monthly payment

●     Making a one-time payment

 

Relevant student loan rewards may not be listed on your loan documents, so contact your loan servicer to determine what they offer.

Student loan repayment assistance programs


Student loan repayment assistance programs allow you to obtain help repaying your student loans by meeting certain qualifications. Typically, these qualifications involve working at a particular organization or type of organization in return for a sum of money that can be put toward your student loan balance.

 

For example, the volunteer organization Volunteers in Service to America (VISTA) offers repayment assistance after you perform a certain number of volunteer hours. Completing 1,700 hours of volunteer time with VISTA results in up to $4,725 toward your loan repayment.

 

In addition, nearly every state has state-based repayment assistance programs for professionals in major fields such as law, education, and healthcare.

Student loan forgiveness

In some cases, all or part of your student loan can be forgiven.

 

Similar and often closely tied to repayment assistance, student loan forgiveness programs are offered to specific professions such as teachers, nurses, and those working in public service. There are also other, more general options available.

 

Here is a list of just some of the professions that may qualify for student loan forgiveness programs:

 

●     Public service

●     Education

●     Healthcare

●     Law

●     Military

 

The Public Service Loan Forgiveness (PSLF) program is one of the most popular. The PSLF program offers graduates who hold a qualifying job for 10 or more years the ability to have the remaining balance of their student loan forgiven. With PSLF, qualification is determined by the public service organization rather than the type of job. The following types of organizations qualify under PSLF:

 

●     Government: Including federal, state, and local.

●     Not-for-profit: Including those exempt underSection 501(c)(3) of the IRC and some which aren’t exempt, if their purpose is offering certain qualifying public services.

●     Volunteer: Some volunteer organizations, suchas the Peace Corps and AmeriCorps, can also qualify you for PSLF.

 

There are several programs which may allow you to qualify for student loan forgiveness, provided you qualify. They may not apply to everyone, but for those who may be able take advantage, they can be an invaluable tool for helping you pay off your student loan.

Combining student loan forgiveness with income-driven repayment plans

All forms of income-driven repayment plans offer a special program with forgiveness, one of the major benefits of such repayment plans. These plans include:

 

●     Income-Based Repayment (IBR)

●     Pay-As-You-Earn (PAYE)

●     Revised Pay-As-You-Earn (RePAYE)

●     Income-Contingent Repayment (ICR)

 

How soon loans can be forgiven depends upon the repayment method. PAYE and RePAYE plans offer forgiveness after 20 years; IBR and ICR plans offer forgiveness after 25 years.

Student loan discharge


In addition to student loan forgiveness, there are several programs that make it possible to discharge your federal student loan, assuming you qualify.

 

How do these differ from forgiveness? Forgiveness has more to do with qualifying based on a specific number of hours worked or a particular profession; discharge programs result from a hardship such as a disability.

 

Hopefully, you’ll never have to take advantage of a discharge program. However, it’s nice to know that they are in place in case you encounter one of these hardships.

 

Here are a few of the most notable student loan discharge programs:

Total and Permanent Disability (TPD) Discharge

If you’ve been permanently disabled, the Total and Permanent Disability program allows for your loan to be discharged. There are four primary ways you can be approved for TPD:

 

●     Physician: Documents from a licensed medical physician stating that you’re totally and permanently disabled

●     Social Security Disability Insurance (SSDI): Proof of SSDI eligibility.

●     Supplemental Security Income (SSI): Proof of SSI eligibility.

●     Military: Documents from the VA (Veterans Affairs) stating that you’re totally and permanently disabled.

 

No matter what form of eligibility you have, you can apply for the TPD discharge program at www.disabilitydischarge.com.

Closed School Discharge

If the school you are attending closes either while you’re attending so that you can’t complete your schooling, or within 120 days after you’ve withdrawn, you may be eligible to have your student loan discharged.

 

However, if it is at all possible for you to transfer to a new school to complete your degree, you will not qualify for this discharge program.

Death Discharge

As difficult as it is to think about, you should know that your loan can be discharged if you or a Parent PLUS loan borrower passes away.

 

To qualify for this discharge, provide the death certificate to your loan servicer.

False Certification Discharge

The False Certification loan discharge is more complicated. You can qualify to have your student loan discharged due to false certification if you meet any one of these criteria:

 

●     You were certified; however, due to a health condition, age, or a past criminal record you were barred from employment in your field

●     You were falsely certified to receive a loan when you actually didn’t qualify

●     Your loan was falsely certified due to identity theft

●     Your name was signed on an application or your loan check was endorsed without your authorization

 

Remember, with every discharge program, you will need to provide some form of proof that you qualify, whether it’s a police report in the case of identity theft, a death certificate in the case of a deceased person, or documents proving you’re totally and permanently disabled.

Recap: Reducing or eliminating the balance of your student loans

 

Several programs can make it easier to repay your student loan, such as:

 

●     Student loan rewards, which provide benefits such as cash-back and interest rate deductions for completing specific tasks

●     Student loan forgiveness, which allows the remaining balance of your student loan to be forgiven, provided you qualify, which is typically specific to professions such as teachers, nurses, and public service workers

●     Discharging your federal student loan is possible in some cases as well, typically as a result of hardship such as disability or school closure

 

Reducing Your Student Loan Balance: Additional Options

 

You may be able to take advantage of one or more of the above programs, but they may not be relevant to you. Regardless, there are additional options for reducing or eliminating your loan balance.

Student loan consolidation

Merge of all your federal loans into one single monthly payment.

 

Your monthly payment isn’t reduced by consolidation and your interest rate is the average of all your loans put together, so it doesn’t typically save you any money. Also, consolidation includes only federal loans. If you obtained one federal loan and one private loan to bridge the gap, you won’t be able to consolidate the two loans.

 

However, for borrowers with multiple federal loans, student loan consolidation is a great way to reduce the number of payments of which you need to keep track.

Student loan refinancing

Student loan refinancing allows you to merge federal and private student loans into a new private loan with one lender and one single monthly payment.

 

Unlike consolidation, refinancing also allows you to obtain a far lower interest rate than you had previously, potentially making a big difference in how long it takes to pay off your loan. And, as we mentioned earlier, even if you've already refinanced your student loan once before, you can do it again to further lower your interest rate and, in some cases, your monthly payment.

 

Student loan refinancing is beyond the scope of this guide; however, you can access a step-by-step process on how to refinance to get rid of your student loan debt here.

Recap: Additional options for loan balance reduction

 

●     Student loan consolidation is a useful way to combine federal student loans into one convenient monthly payment.

●     Student loan refinancing combines both federal and private student loans into one monthly payment at a reduced interest rate.

 

Knowledge Is Power: Taking Control of Your Student Loans

 

Student loans can seem like an incredible burden hanging over your head.

 

However, once you break down the facts and get to know your loan, you can see there are many options for you to manage your loan better and help eliminate it for good.

 

So, take some time to get to know your student loan better. Find out:

 

●     What type of loan you have

●     What type of repayment plan you have

●     What options are available to you based on your loan and repayment plan

●     Which options are best suited to your situation

 

Now that you know what it takes to be smart about your student loan, the power is in your hands.

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