The Modern Rules of Student Loan Repayment

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The Modern Rules of Student Loan Repayment

By |April 13th, 2015|

Years ago, student loans were easier to deal with.

You graduated, got a job, and paid off your loans in 10 years – sooner, if you got a good enough job.

But even for people with “normal” jobs, repaying a student loan was a short-term inconvenience that led to a better future.

Nowadays it’s not so simple. College is more expensive than ever, and we’re forced to use student loans to cover the majority of it. By the time we graduate, we’re looking at tens of thousands of dollars in debt.

This new reality requires a new way to attack the problem of student loan repayment. Without new rules, we’re never going to win the student loan wars.

Luckily, we’ve got a roadmap for you to follow.

Start Repayment Immediately

When you finish school, you get six months before the federal student loans come calling. But you can end that forbearance as soon as you part ways with the school.

When you start paying faster, you finish paying faster. Even cutting out six months of interest can mean a lot.

Don’t Go Standard

When you enter repayment, you can choose your repayment schedule. If you don’t, the servicer will put you into the standard 10-year repayment schedule.

If you’re smart, you won’t let that happen. Skip right to one of the income dependent payment plans. These plans let you adjust your monthly payments based on a percentage of your income.

Your payment is set as a percentage of your income from the previous year. When you start paying at graduation, your payment will be low because you likely didn’t make much money as a student.

As an added bonus, income dependent repayment plans come with the ability to wipe out your unpaid student loans. Depending on your loan age, that may be 20 or 25 years.

Pay Private Loans Faster

Private student loans don’t offer income dependent repayment options. There’s no forbearances, deferments, or loan discharge. Interest rates tends to be higher, too.

In other words, private student loans are a ripoff that offer no protection for you.

That’s why it’s important for you to pay those private student loans as fast as you can. Every spare dollar you have should go to the private student loan company.

If you can, consider refinancing the private student loans. Most people don’t have that option because of their credit or income, but it’s something to think about.

Keep Your Taxes Separate

The government looks at household adjusted gross income when calculating income dependent repayment amount.

If you’re married and file taxes together, adjusted gross income includes your spouse’s income. But if you file separate tax returns, only your income counts.

You may want to file taxes separate from your spouse. Depending on the difference in your annual refund, the savings on your student loans may make it worth the effort.

Consider a Job in Public Service

Federal student loans offer the option for public service loan forgiveness. If you work full-time for the government or a not-for-profit then you may qualify after 10 years of repayment.

Couple that public service job with an income dependent repayment option and you may end up wiping out a big chunk of your loans.

Public service loan forgiveness doesn’t apply to private student loans, but any savings is worth it.

Don’t Panic

If you worry about your student loans all the time then you’ll drive yourself crazy. Panic and you’ll make mistakes, losing focus on the goal of getting out of debt.

Lay the groundwork early so you can get a plan for paying off your student loans. There may be bumps in the road but if you know all your options then it will make it easier for you.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.