Do you have student loan debt that is so enormous that your salary won’t ever allow you to pay it off in this lifetime? Do you owe more student loan debt that you make?
If so, take a deep breath, and keep reading.
You went to school with aspirations for a better future, and you borrowed money so that you could advance your skill set and maximize your earning potential. You are working towards advancing your career, but meanwhile, your debt is higher than your salary – at least for now. What do you do when you are not earning what you deserve, and you feel like you can’t make ends meet?
Remember, one of our key rules of borrowing student loans is that you should never borrow more than your expected first year salary. But if you find yourself in the situation where you owe more, here are the steps you need to take so you don't go broke.
Keep Your Head Up And Get Organized
Just because you make less right now does not mean that your salary will remain low forever. Use this time to create solid financial habits so that you can you can pay off debt fast and live the life you deserve.
No matter what your situation, you can't take any action if you're not financially organized. You need to have a good grasp of your income, expenses, and total balance of all your loans. We recommend using the free software Personal Capital to get organized and know where you stand.
Financial experts claim that people automatically spend less once they track their finances. Keeping track of finances allows you to measure and evaluate the data in front of you. As a result, you will intentionally spend on the things you love, and cut back on the things you don’t.
When you get a raise, don’t raise your cost of living. Instead, invest the amount towards your future. These personal finance habits will make you rich if you follow them consistently, and then, student loan debt will be a thing of the past.
Create Your Action Plan To Pay Off Student Loans
Once you're organized, it's time to create an action plan and take steps to tackle your debt.
Log into your loan servicer account and gather your records. Here is what you will need:
- Find out how much you owe
- What your interest rates are
- How much of your monthly payments go toward paying down the principal, and how long you have to pay it off.
Organize your debts in amount and interest rate, and pay them off in that order, similar to Dave Ramsey’s “debt snowball” method of paying down debt.
Next, do the same exercise for any other types of debt you have. Once you have all the information in front of you, it’ll be easier to see where your money should be going.
Explore All of Your Repayment and Forgiveness Options
For your student loans, you need to take advantage of repayment plans and forgiveness options. The Definitive Guide to Student Loan Debt will dive deep into all of your repayment options.
For many people, this will involve a combination of taking advantage of an income-driven repayment plan, and looking for loan forgiveness options.
Income Driven Repayment Plan
If you have federal loans, switching to an income-driven repayment plan can lower your monthly payments to as low as $0 per month. Plus, after 20 to 25 years, any remaining balance will be forgiven.
The forgiven amount will be taxed and your total interest payments will be higher. You also have to reapply every year. However, keeping your payments manageable will help you stay on track and out of default, which can negatively impact your credit score, lead to wage garnishment, and cause your entire student loan debt to become due at once.
Public Service Loan Forgiveness
One of the most popular forgiveness options for federal loans is public service loan forgiveness. It’s available to those who work for a nonprofit or the government for at least 10 years and make 120 on-time payments on their loans. If you plan to sign up for PSLF, you can cut costs even further by switching to an income-driven repayment plan to lower your monthly payments.
Lastly, you will want to review the student loan forgiveness options available by state.
Use Deferment and Forbearance as a Last Resort
If you find that your student loan payments are too high for just a temporary period of time, then student loan deferment or forbearance may be a viable option for you. However, your loan balance may still grow while you're not paying, so typically an income-driven repayment plan is a better option.
Options For Private Loans
If you have private student loans, there are much fewer options for your student loan debt. We break down all the options here: What To Do If You Have Trouble With Your Private Student Loans.
Getting Professional Help With Your Debt
It sounds like the options above could be confusing, but it doesn’t have to be. You can sign up for these programs at StudentLoans.gov.
If you want help, we recommend Ameritech Financial, a company I’ve personally vetted. They can help you navigate the student loan terrain and help you systematically apply for the programs offered by the Department of Education.
If you’re not sure about doing it yourself, then Ameritech can help you find the repayment solution that’s right for you, and potentially restructure your loans so that you can qualify for programs you may not otherwise have qualified for. You can call them at 1-866-863-3870 or check out their website here.
Final Thoughts
The worst thing you can possibly do is to ignore your loan servicer and not pay your student loan at all.
Once you examine where all of your money is going, you may find that you can live on less and save more. Your debt payoff plan will enable you to get on a student loan repayment plan that will allow for maximum savings, and in some instance, loan forgiveness.
The Definitive Guide to Student Loan Debt is an excellent resource that will help you learn all of your options to get rid of your student loan debt in an efficient manner. While it may seem overwhelming right now, with the right plan, you will be on track to pay off your student loan debt at an affordable pace.
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Can you consolidate the loans and then remove the “no forgiveness in bankruptcy” clause?
No, consolidation has nothing to do with the bankruptcy aspect of student loan debt. Consolidation simply allows you to combine multiple loans into a single loan for ease of repayment and organization. Consolidation doesn’t change anything with your underlying loans, but it actually can hurt you. Read this: http://thecollegeinvestor.com/18164/the-problems-with-student-loan-consolidation/
So, why can’t you easily get rid of student loans in bankruptcy? It’s because the collateral for student loans is your potential to earn income. When you get a car loan, the collateral is the car. If you don’t pay your car loan, the bank repossesses your car. It works the same for student loans. If you don’t pay your loans, the government will garnish your tax refunds, Social Security, etc.
The only circumstances where people get rid of their student loans in bankruptcy (or maybe minimized) is if they don’t have the potential to earn enough to pay back the debt. But if you’re younger, and have a lifetime of earnings ahead of you, the possibility of this is slim to none. Because there is a lot of “collateral” (i.e. your income) still to be earned.
Student loans as an issue is such a big headline now a days I REALLY hope high school students see them and think hard about leveraging themselves and have a plan to keep it as low as possible through savings in high school, summer jobs, cutting back on spending while in college/university. Otherwise it’s a heavy weight to get out from under.