Excluding PLUS loans, the average college student loan debt was $23,186 amongst graduating seniors. Identifying ways to pay student loans off more affordably and/or quickly can help to alleviate much of the pressure brought on by a university education. Graduates should avoid defaulting on college loan debt because it will mean that the federal measures that are designed to help will no longer be a available. Worse still, a number of punitive measures can be enforced against the individual.
How to Pay Student Loans Off
Eliminating college student loan debt isn’t something that can be achieved quickly because of the sheer amount of money involved. Student loan bankruptcy isn’t an option unless that person has a permanent disablement that restricts their long term earning potential. However, the new income-based repayment plan could help to alleviate much of the pressure brought on by unaffordable student loan debt repayments. This now forms a viable alternative to deferral and forbearance where a graduate may be able to delay paying back the money they owe for a period of up to 3 years. Others could benefit from a student loan forgiveness program or may wish to consolidate student loan debt to simplify their finances.
Income Based College Student Loan Debt Repayment
Since the College Cost Reduction and Access Act of 2007 came into force on the 1 July 2009, it is now possible to make an income-based repayment to pay student loans off at an affordable rate. The 2009 poverty line income in the U.S. is $10,830. The graduate will then pay 15% of the difference between their income and the poverty line income over a 12 month period. For example, if the graduate earns $27,500, he/she will pay just $208.38 per month. Once a period of 25 years has elapsed, any remaining college student loan debt will be written off. Under current IRS rules, this will be taxable.
Pay Off Student Loans with a Forgiveness Program
In order to encourage graduates to enter fundamentally important public sector services, a number of student loan forgiveness programs have been introduced. They allow someone who enters a career in certain teaching and nursing jobs to write off a fixed percentage of debt for each year of service. It will normally pay off student loans over a 5 year period. Unfortunately, the recession has meant that many of these programs have been scaled back, but it is still well worth looking into.
Consolidate Student Loans
College student loan debt isn’t always as well organised as might be anticipated. There are regularly multiple accounts, each requiring a separate payment. Consolidation can help a graduate pay student loans off more quickly and/or improve affordability. However, turning federal debt into a bank loan is rarely a wise move as the APR is lower. The income based repayment plan offers a better alternative for borrowers.