The class of 2015 was the most indebted in the history of the United States. According to the Wall Street Journal, over 70% of these graduates held some form of student loan debt, with the average being just over $35,000.
Student loan debt has been a growing issue over the last decade. With over $1.3 trillion outstanding loans, it is currently the second highest form of debt in our nation, just after home mortgages.
Borrowers (students and parents) often feel trapped under their student loan debt, and feel as if there is no possible way out. There are countless stories of those who were unable to make payments and, instead of making an effort to improve their situations, chose to ignore their student loans. There are, however, ways to save on student debt or even eliminate it altogether.
Student Loan Refinancing
One of the relatively unknown, yet most effective, ways to save money on student loan repayment is through student loan refinancing options. When you refinance your loans, a private lender pays off your old federal or private loans and gives you a new one with either a lower interest rate or lower monthly payments.
If you are lucky enough to qualify for a lower interest rate, you could potentially save thousands over the life of your loan. When you have a lower interest rate, less money capitalizes each month. This leads to a lower principal and, therefore, less interest compounding in subsequent months.
Some people may choose to lower their monthly payment through refinancing. This is done by extending the repayment term of the loan. Though this makes repayment much more manageable, you will typically end up paying more over the life of the loan.
Who is Eligible for Refinancing?
Lenders determine eligibility based on creditworthiness. When you apply for refinancing, the lender will pull your credit score. If you have a score of at least 700, are up-to-date on current loans, and have a debt-to-income ratio of less than 40%, you will most likely qualify for some lenders.
What are the Other Benefits of Refinancing?
Aside from saving money or lowering your monthly payment, there are many benefits of refinancing your student debt. First off, you have the option to switch your interest type. This means if you have a fixed rate, in which the interest stays constant over the life of the loan, you can switch it to a variable rate, which changes with the market, or vice-versa.
Variable rates are always lower than fixed rates but are seen as more of a risk. For example, if you have federal loans with a fixed rate, but are optimistic about the market, you may choose to switch to a variable rate. Personally, I wouldn't recommend a variable rate in a financial environment where interest rates are only going to increase over time. Refinance now at the lowest rates available and save money in the future.
Another great benefit of refinancing is the option to consolidate multiple student loans into one. Borrowers are able to refinance all of their loans, whether federal or private, at the same time. Consolidation makes repayment much easier as you only have to make one payment and deal with one servicer.
Student Loan Forgiveness
The concept of student loan forgiveness is relatively straightforward and easy to understand. In short, if your loans are forgiven, you no longer have to pay them back and all of the debt is released. There are a variety of ways to have your loans forgiven, but most of them have very strict eligibility requirements.
State Student Loan Forgiveness Programs
Sadly, your eligibility for some of the most lucrative forgiveness programs depends entirely on where you live. Some states provide more help than others. Take the state of Virginia, as an example. If several pending bills pass, the Virginia Student Loan Refinancing Authority will be created. This would allow debtors to refinance any loans taken for higher education.
New York is another state that has offered a program to help student loan debtors. They launched the 'Get On Your Feet' initiative at the end of 2015. Eligible residents can have two years of student loan repayments covered. Of course, the restrictions are strict, so the chances of qualifying aren't likely. Other states also have variations of the forgiveness and refinancing ideas.
Public Service Loan Forgiveness (PSLF)
The PSLF program is the biggest forgiveness program offered by the federal government. This only applies to people who have taken out federal student loans, so if you have private loans instead, you are automatically ineligible.
You also have to work for a certain institution, which may include the local government or some form of private company providing public services. You can find a full list on the official site of the PSLF program. In addition, in order to qualify for PSLF, you must make 120 qualifying payments. The first batch of applicants will become eligible for the program in August 2017.
Other Federal Forgiveness Programs
There are other student loan forgiveness programs available for specific professions. The military and teaching professions are two examples of occupations that have specific student loan forgiveness programs. There are strict requirements for both of these and it isn't as easy as simply submitting an application to have your loans forgiven.
If you are one of the people feeling trapped by student loans, remember that you do have options. If you have secured a job and have a good credit score, you should consider refinancing to a lower rate. Even if your offer is only a few percentage points less, you could still save thousands over the life of your loan. Alternatively, if you have worked in the public service sector, the military, or as a nurse, check to see if you are eligible for forgiveness.
Student loan debt can be overwhelming, but hiding from it won't ever be a viable solution. Check out your options and do something about it!