Managing Student Loan Debt
A review of some options for federal and private loans.
Are you dealing with student loan debt? Have you explored ways to try and restructure it or have it forgiven?
No one wants to carry five figures of education debt into middle age or retirement, but some do. The burden is not just financial. Last fall, the Madison Capital Times asked student loan borrowers in the state of Wisconsin how they felt about their education debt. Sixteen percent said they were “terrified” of it, and another 30% indicated they felt only slightly less so. Fortunately, you may have possibilities to manage and reduce the debt load and the anxiety it breeds.1
For a better chance of refinancing a student loan, lift your credit score. The average credit score for borrowers able to refi in 2017 was 764, according to online education loan marketplace LendEDU. A 764 score means you have excellent credit; 850 is as high as you can go, and 700 is considered an “average” FICO score. If you are offered new terms, you may or may not like them; LendEDU says that the average interest rate on a newly refinanced loan last year was 5.56%.2
It is hard to arrange new terms of payment; LendEDU reports that more than half of student loan borrowers who applied for a refi in 2017 were turned down. Some borrowers reject the refinancing offers they get. In about 25% of states, you can also approach state refinance authorities, which tend to set the bar lower for qualifying credit scores. Keep in mind that if you refinance a federal loan, you may lose eligibility for an income-driven repayment plan that limits your monthly payment to 10-20% of your discretionary income.2,3
If refinancing is not possible, consider both common and unusual financial options. You could find a new job, one at which you can negotiate a higher salary than you now earn (in this economy, that might not be so difficult). Ask for a raise from your current employer. Sell things or freelance as a path to generating extra cash you can apply to your loans. Alternately, find the cash through frugality. Go car free, room with someone, sublet your apartment, or downsize to a less expensive residence. Think outside the box: would it be cheaper, better, and more fun to live in another country? Could you get a job that pays your rent for you?
Can your loan be forgiven? The channel the federal government offers toward student loan forgiveness is not for everyone. The Public Service Loan Forgiveness (PSLF) program asks you to work for a non-profit, in a public service capacity, for ten years. Some borrowers look at those conditions and see career and salary compromises they are unwilling to make.4
If you have no interest in working in the non-profit sector, there are possible paths toward federal student loan forgiveness apart from the PSLF. Some states have their own payment assistance programs, some of which require less than five years of work for eligibility. Sometimes the assistance depends on the borrower moving to a rural community within the state or pursuing a STEM, medical, or educational career.4
Can you go to work for a big company? If you do, your employer might be willing to help. A small percentage of corporations are matching the student loan payments their employees make. Others are offering workers $1,200-$2,000 a year to apply toward repayments.4
Those who serve in the Army, Navy, Air Force, and National Guard can potentially take advantage of student loan forgiveness programs within those service branches. The Army’s Student Loan Repayment Program (SLRP) can put as much as $65,000 toward repayment of an active-duty soldier’s education loans. Veterans may also find themselves eligible for these programs.4
Teachers can also pursue Teacher Loan Forgiveness (TLF). Through this federal program, you can arrange to have as much as $17,500 in federal education loans waived once you have taught math or science for five years at the high school level or special education classes for five years at any grade level. You must work for an educational services agency or teach at a school where students are primarily low income to be eligible for TLF.4
There is one inescapable fact about all this: eradicating student loan debt takes time. You may live with that debt for a decade or longer; the good news is, you can save, invest, and plan to build wealth even while carrying such debt. Be sure to talk with a financial professional about that possibility.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and North Light Financial Services are not affiliated. Cambridge does not offer tax advice. Office of Supervisory Jurisdiction: 46 Accord Park Drive / Norwell, MA 02061 Phone: 781-878-4063
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Citations.
1 – tinyurl.com/y72vtnp2 [1/8/18]
2 – time.com/money/5104919/average-credit-score-student-loan-refinancing/ [1/17/18]
3 – studentloanhero.com/featured/strategies-broke-cant-pay-your-student-loans/ [6/22/17]
4 – forbes.com/sites/andrewjosuweit/2018/01/31/5-ways-you-can-get-student-loan-forgiveness-that-dont-involve-public-service/ [1/31/18]
