Student financial aid

Student-Loan Debt: How to Pay Off Your Student Loans?

by Tutelage

Posted on 12/15/2015

Here are some ways students might approach eliminating or reducing their debt loads:

1. Income-Based Repayment:

One way to handle high-cost student loan debt is to get rid of it entirely. In 2011, the president announced an executive action that expanded the Income-Based Repayment, or IBR, option for low-wage earners (like startup entrepreneurs) with federal student loans. The "Pay As You Earn" plan allows many students to cap their monthly loan repayments at 10 percent of their discretionary income and possibly have their loans forgiveness after 20 years of responsible repayment. Previously, the program capped federal-student loan payments at 15 percent of a person's discretionary income and forgave loans after 25 years of on time payments. While borrowers may pay more interest over time, an IBR can help reduce your minimum monthly payments, which can help free up capital to put toward a startup.

2. Deferment or forbearance:

There’s less flexibility with private-student loan debt, though minimum-monthly payments on private loans can be deferred through forbearance, interest continues to accrue on any unpaid debt. Forbearance isn’t an ideal option, but often the best one available.

3. Debt consolidation and a pay-off plan:

Many college graduates choose to bundle their debts into one loan that requires a single and potentially lower monthly payment.

4. Defaulting:

Student-loan debt is notoriously difficult to eliminate. This is a course best left untried, as those who default on a federal-student loan can have their wages garnished without a court order and are subject to the IRS withholding any income tax refunds they would receive until the debt is paid off. Creditors typically notify the credit bureaus when a customer defaults on a student loan. Long-term effects of such negative information landing on someone’s credit report include difficulty qualifying for auto loans, home mortgages and credit cards with decent interest rates.

It’s crucial to all students to be able to recognize the importance of financial responsibility when it comes to educational loan, act accordingly, or get advice from knowledgeable financial coach or to one of the financial aid counselors.

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