What Student Loan Forgiveness Options are Available?
A few days ago, I received a notice in the mail that my student loan payments are coming due. I had been dreading the payments for years, but I was honestly shocked at the amount of my monthly payments: $1153.35. Who has that kind of money left over each month? Not me. I do not mind paying what I owe, but good grief, that is more than I can handle at once. I am on a mission to figure out another way, and I want to share my research with others in my predicament. We are going to take a look at ways to prevent needing student loans, student loan forgiveness, and alternative repayment options.
What Happens If I Do Not Pay?
Before we look at student loan forgiveness and repayment alternatives, let’s be clear on how non-payment of loans can hurt you. It goes beyond showing up on your credit score. These are federal loans we are talking about. The federal government has the power to get their money back in any way they can. This means that if you do not pay, they can garnish your wages- something most people cannot afford. They can also keep any tax refund payments you are should receive. It just is not worth the risk. Instead, put in the work to get one of the following options working for you.
Loan Forgiveness Programs
You hear about student loan forgiveness programs all the time, but it really is not what you think it is. In fact, if you call most of those places that offer loan forgiveness, they are actually loan consolidation places that want you to pay them to consolidate your loans. The only way to get any kind of student loan forgiveness is through the federal government’s approval, but it is not so easy.
Most student loan forgiveness programs are only available after a set amount of years of payments- yes, years. For instance, some student loan forgiveness programs only apply after 20 or 25 years of on-time payments. If you are screaming, “But I can’t afford my loan payment,” it’s okay. In a moment, we will talk about getting those payments lowered until you qualify for forgiveness.
Before that, though, it is important to note that some degree programs are offered student loan forgiveness for other reasons. Here are some examples:
Public Service Loan Forgiveness (PSLF)
There is student loan forgiveness is for people who choose to work in public service jobs. It does not kick in immediately, though. You will still need to make 120 payments- that’s about 10 years. However, if you do this, you qualify for 100% forgiveness.
Teacher Loan Forgiveness
If you are a teacher and work at a qualifying school for a minimum of five consecutive years, you can receive anywhere from $5,000 to $17,500 in student loan forgiveness.
-You will also find student loan forgiveness programs available for doctors and other health care workers, lawyers, and possibly a few other careers if you work for qualifying companies.
How Do I Qualify?
By visiting studentloans.gov, you will be in front of a wealth of information about student loan forgiveness and repayment plans. By filling out some information, you should receive a summary of what you can qualify for. This will also show you your student loan balance and let you control some parts of payments you make.
What Do I Do If I Do Not Qualify?
Even if you do not qualify for student loan forgiveness, you can likely qualify for much lower repayment plans. These include:
- Income Based Repayment (IBR)
- Pay as You Earn (PAYE)
- Income Contingent Repayment (ICR)
Each of these can help lower your payment. Some people will even qualify for payments as low as $0 per month, but you have to recertify, usually once per year.
Student Loan Consolidation
If you do not qualify for student loan forgiveness, another option you have is student loan consolidation. You can shop around for a loan company that will offer a lower payment and lower interest rate. You will still be paying your payment every month, put it will only be one payment. And it should be way less than my $1153 payments, especially if you shop around enough. In fact, loan consolidation may give you a much longer repayment period. If there are no other options in your path, take a look into consolidating your loans.
Current Student Loans
Everybody Has Student Loans, So Why Should I Worry About Them?
If you have even been paying the slightest bit of attention to the news lately, you know about the national student debt crisis in America. The specifics? Approximately 43 million Americans owe student loans, and do not think that is only the broke folks. Even doctors who make excellent money work for years to pay off their debt.
Of the 43 million Americans that owe student loans, there is a total of about $1.5 TRILLION dollars of federal student loan debt- just federal. There is another $119 billion in private student loan debt. Is your head swirling yet? As sad as it is to see such numbers, I must admit- guiltily- that I am actually glad I am not the only one drowning in it.
Due to this immense amount of debt, it is easy to see that most people have student loans on their credit. At the same time, those same people still get credit elsewhere. It has become almost commonplace among many to think, “Well, if everyone has student debt, it can’t really hurt my credit that bad, can it?”
It actually can, but it does often get viewed a little different from other debt. Let’s be clear about how, though. If you go in to apply for a loan and you owe student loans, lenders do not view that debt as heavily as they do others- not usually, anyway. Yes, most people have student debt so it is not viewed quite as negatively.
However, if you default on your payments, it will be viewed in negative light. If you are not in default, your student loans say something such as, “Paid as agreed”, on your credit. So yes, they are a factor, but according to your credit, they are being taken care of. Once you default, it becomes a problem.
Additionally, for lenders who only look at your score, not the items on your credit, your student loans can hurt your debt to income ratio. The best thing you can do is make the payments on time as much as possible. If your payments, like mine, are way too high for you to pay, there are other options.
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Understanding Student Loans
Now that you’ve found the information you came for, let’s go over the basics. Yes, student loan forgiveness is something we all think about. But for those of you that don’t yet have them, the next couple of sections are very important. So don’t skip them.
Most people sign for student loans with no real thought about it. They know it is a loan that helps them pay for college, but most people do not truly understand how they work. Since student loans are the norm, they just accept them and jump in head first. Let’s remedy that.
On the basic level, student loans are loans with which to pay tuition and other school and living expenses. They do have to be repaid with interest, but that interest is lower than most other loan types. With some, you owe nothing while you are in school. With others, you will have to pay interest while in school. There are also some that will require full payments while in school. We will break these all down in a moment.
There is no extra step you need to take to apply for student loans. When your desired school receives your FAFSA and the results, they will tell you how much aid you can get from which categories, including loans. If you choose to accept them, the school will send you the necessary paperwork to fill out.
Types of Student Loans
There are two main types of student loans: federal and private. Private loans are much easier to understand, so let’s get those out of the way first.
Private Student Loans
These loans come from lenders not affiliated with the federal government, such as the college itself, a state organization, banks or credit unions, and in some rare cases, individual investors. Private student loans are similar to most other private loans. They usually require a credit check and often require a cosigner. Your payments often have to begin while you are in school. Also, the interest rates may be variable- they have gone up to 18%- and that interest may not be tax-deductible. While these can be very helpful to fill when you need just a little extra, they should be a last resort.
Now for the more complicated loans. Federal loans are the most common type and come in different shapes and sizes, so to speak.
You have probably heard of Stafford Loans at some point. They are broken down into the following:
Direct Subsidized Loans
Direct subsidized loans are available to undergraduates only, if there is a financial need. With these, nothing is due while you are in school because the government pays the interest. Additionally, they pay the interest during any times of deferment you may go through.
Direct Unsubsidized Loans
Direct unsubsidized loans are awarded to both undergraduates and graduates depending on the cost of attendance of the school and the amount of any other aid that you receive. With these, you pay the interest the entire time you are in school.
Direct PLUS Loans
These are available from the U.S. Department of Education to graduates and professional students. Direct PLUS Loans require a credit check and a favorable credit history.
Other things to know
For the most part, there is no need for a cosigner or a credit check- except for the PLUS loans. Typically, the interest rate stays the same until the loan is repaid. Also, the interest is tax-deductible. If you are making payments on your student loans, you will receive a 1098 e that you can file with your taxes.
Future Student Loan and Financial Aid Planning
Is There a Better Way to Pay for School?
If you are not yet in college, have not graduated, or are preparing to send your kids to school, you still have a chance to pay for tuition and other expenses. These are some:
Look for a Tuition Free School
Yes, they exist. They are not, on the other hand, very well advertised, so you will need to do some research. If you find one you are interested in, all of that hard work will pay off.
Pell grants are available, but there is a cap on them. Usually, it is enough to cover two-year schools or programs, but that may vary depending on which one you choose. It is never a bad idea to at least start at a school where tuition covers the first couple of years. You can always move on later.
You likely know that some people get scholarships, but they are usually for sports, great grades, and music. That’s what we hear of the most, anyway. There are actually many other scholarships you can get for a wide range of things.
If you are gifted in writing, science, or a few other subjects, there are contests held through the year. Some prizes include scholarships while others include cash prizes, and those cash prizes can range from $50 to the thousands. Both the scholarships and the cash can help you out with college costs, so do an Internet search to see what is available in your field of interest.
Work study is a federal program that helps students with the funding needed for college through part-time employment. This may or may not be ideal for you, but give your school a call to see what is available.
Pay As You Go
There is always the option to pay for your college one semester at a time. This would require some extra work, but it could help you walk away from graduation free from loans. Try picking up extra shifts at your job during the summer. Babysit, do yard work, tutor, or anything else you can on weekends. Even if you can only cover one semester your entire program, that can save you thousands in loan costs.
There are employers that will reimburse your tuition costs after graduation, and some who will assist while you are in school. Talk to your current employer or do a search for other employers who provide this type of program to find out the ins and outs of their particular program.
While you are in school, there are two different tax credits that you can apply for: the American Opportunity Tax Credit and the Lifetime Learning Credit. Apply for these credits and then use that credit money to go towards your college costs.
There are a lot of people who do not want to try it, but crowdfunding has become a big thing. You plead your case on platforms such as GoFundMe. Tell the crowd what you are trying to do and give them a good, compelling reason why. Often, at least a few people will try to help you out. Remember, anything you can raise in other ways means that it will not be coming out in loans.
Many organizations have learned to harness the power of fundraisers. There is no reason you cannot see doughnuts, too. Give it a try and see what you can do.
If you, your parent, or your spouse has served in the military, there is an aid for those who qualify. Your school can usually help you figure out what you qualify for and how to go about getting it.
Can I Cut the Amount of Loan I Need?
If you cannot get around needing a loan, there are ways to cut down on the amount you have to borrow. The following are just a few ideas, but talking to your financial aid assistant at school might help you come up with some of other ideas.
Attend Classes in the Summer
Summer classes are quite often much cheaper than other terms. If you can attend at least some classes during the summer, or other discounted times, you can save a lot. Check in with different schools to see who has terms that you can save on.
Pay for Living Expenses Yourself
When you are offered your financial assistance package from your school, there is usually assistance that is in addition to school costs. If you take out student loans, you will often be offered assistance with living expenses. Basically, you can get the maximum semester amount. After tuition is taken out, the remainder can go to you as a check or bank deposit that you can then use for basically anything.
As I have always attended online school, I have always used my additional amount to pay for my Internet or computer equipment. Some people use it to help with rent or monthly bills so that they do not have to work so much while also trying to attend school. I tend to regret accepting it. Yes, it helps at that time, but it also adds on to the amount I owe.
If you can afford to pay your own living expenses while in school, do that instead. It comes down to priorities, really. Do you want the convenience now and the headache later, or do you want to work a little harder now and have less of a headache later?
Cut Down Material Expenses
My current college adds the materials fee onto the tuition, so I really have no choice this time. However, the school I went through for my Associate’s and Bachelor’s degrees let you be in charge of your own materials. You had the choice to just let them send the textbooks to you and add that into your tuition, but you could also order your own.
When I was a newbie, I just let them add it on to my tuition because I did not know any better. One day, though, I saw the prices of those texts: $175, $310, $279, and so on. Call me cheap if you want to but that was an awful lot of money to spend on a textbook I was probably never going to look at again after class. In fact, I can honestly say that after five years of school, there were only two books I referred back to which were Psychology and Finance, but that was only because I love those topics. I really could have found the information online.
You can get used textbooks, or even find them online for a lot cheaper. I quickly discovered two websites that offered even lower options: Textbook Rush and Knetbooks. I could find the textbooks that were costing me hundreds from for $10, $20, or $30- sometimes more and sometimes less. Even better, you could rent them instead of buying them or choose the digital version for cheaper.
Live Off Campus
Living and eating on campus will add to the cost tremendously. Try to live off campus instead. Find a couple of schoolmates to share a place with, pay your parents $100 a month to stay with them, or even rent a small place ten minutes from campus. Any of those will cut your costs down a lot. And, while I suggest eating at home as much as possible, even eating a burger at a nearby drive-thru is usually much cheaper than eating on campus.
Community College or Certificate Programs
I am about to lay down some truth here that will likely have my grandmother rolling over in her grave and some parents wanting to take off my head, but I think I will risk it. I was told my whole life that you have to have a college degree to make it in life. From the moment I can remember, some family members told me that college was a life or death situation, and I was scared into believing that was true. Well, it’s not. It is not necessary. In fact, there are many people who did not attend any college that are making it through life much easier than those that have a college degree.
I learned too late that I should have considered other options. After receiving my Associate’s Degree in Business Administration, I thought that I could at least get my foot in the door somewhere. Instead, I was told I needed either a Bachelor’s Degree or experience. And, of course, that left me wondering how I was supposed to get experience if I could not get hired.
I made the choice to re-enter college for my Bachelor’s Degree, telling myself that this was it. This was the answer to my problem. I graduated and went out to put in applications and got more surprising news. The only thing I could get hired for was an entry level position paying $8 per hour. I wanted to scream. At this point, I was in all of this student loan debt so that I could make less than I was making waiting tables?
Still Not Enough
My school eventually helped me land a job as a manager at a local mattress store, but I was still only making a little over minimum wage. I let someone convince me that if I really wanted to make it, I needed a Master’s Degree. And I really just wanted to give my kids a good life, so I listened and entered a Master’s program for Project Management and hit the ground running. I thought everything was going great until I got smacked in the face with some irritating realizations.
First, I was the only manager at this chain of retailers that had a degree…period. I could have gotten that job without going to school at all. In fact, my hiring manager told me that my degree had nothing to do with why they hired me – it was just a bonus.
Second, the project manager at this company also had no degree and no project management training. I wanted to scream. I felt like I had just wasted the last five years of my lifetime I could have spent loving on my kids more and working towards a career I wanted instead of a degree. It was disheartening.
The point of my rant is to say that most career fields do not need a degree. Obviously, if you want to be a doctor, nurse, or a couple of other things, you need school and training, but I would definitely want to know what I was doing if someone’s life was in my hand anyway. There are other fields, though, that apparently require nothing but an application and a willingness to learn. This is actually exciting news for most people.
Before jumping into college, do some research to find out exactly what education you need to do what you want to do. It may be nothing. You might be able to do some self-studying at home and learn what you need to. Companies may just want a fresh face that they can hire and mold. It is better to check before spending thousands of dollars and hours of time on something that is not necessary.
Also, if you need some education, or you just feel that you would be more confident with it, consider a two-year community college or even a certificate program. Pell grants often completely cover community colleges. Most certificate programs are, too. There are plenty of options available that can get you training and get you to work faster, so explore all of your options.
Trying to repay your student loans can be stressful, especially when your payments are more than your monthly rent. Fortunately, there are options that can help borrowers pay back with more ease. Take some time to research options available to you and apply. Always keep loan consolidation on your mind in case no other options work out as you need them to.
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Brandy Woodfolk is an educator, home business owner, project manager, and lifelong learner. After a less than stellar financial upbringing, Brandy dedicated her schooling and independent studies to financial literacy. She quickly became the go-to among family, friends, and acquaintances for everything finance. Her inner circle loves to joke that she is an expert at “budgeting to the penny”. Brandy dedicates a large portion of her time to teaching parents how to succeed financially without sacrificing time with their little ones. She also teaches classes to homeschooled teenagers about finances and other life skills they need to succeed as adults.
Brandy writes about smart money management and wealth building in simple and relatable ways so all who wish to can understand the world of finance.