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What could be worth going thousands of dollars into debt more than an education that promises the reward of a well-paying job? You may be reconsidering now that you're being shadowed by a cloud of student loan debt that threatens to follow you for decades. Starting in 2012, the president's new "Pay as You Earn" proposal will take some of the pressure off borrowers on the income-based repayment plan by reducing monthly payments to 10% of income compared to 15% previously. More borrowers with multiple loans may also be able to consolidate them to lower their interest rates.
If you're truly having trouble making ends meet due to your student loan payments, taking advantage of these measures makes sense. Just don't forget that the less you pay now, the more you'll pay overall. A quick comparison of the standard 10-year repayment plan versus the fixed extended 25-year repayment plan at a 6% interest rate for $50,000 in loans shows you'd be paying approximately $30,000 more over time under the longer plan. Rather keep that money for yourself? Consider some other options about how to pay off your loans:
Pay extra. Just like paying an extra payment towards your mortgage each year could shave off years and save you thousands of dollars in interest payments, you can apply the same principle to your student loans. If you've already established an emergency savings fund and your next goal is to eliminate debt, compare the interest rates on all your debts. If your student loan debt is the highest one or you have no other debts, you could pay it off earlier by making extra payments. Don't forget that if you're eligible for the student loan interest deduction on your taxes, the actual interest rate you're paying on your student loans may be lower. You could add as little as an extra $50 to your monthly student loan payments or make an annual lump sum payment, such as with your bonus check.
Work for the government or become a teacher. Your loans could be forgiven after 10 years of payments if you work for eligible employers under the Public Service Loan Forgiveness Program. Certain teaching positions are also eligible for loan forgiveness.
Take advantage of interest rate discounts. The less interest you have to pay, the faster you'll pay off your loans. Contact your lender to see if they offer any discounts, such as for automatic payments, on-time payments or consolidation.
As annoying as your monthly payments are, student loan debt isn't all that bad. The interest rates are relatively low, some of the interest may be tax-deductible, you can lower the interest rate by making automatic payments and your debt could even be forgiven. Can you say the same for any of your credit card debts?
Recommended Links:
White House press release on "Pay as You Earn" proposal
http://www.whitehouse.gov/the-press-office/2011/10/25/fact-sheet-help-am...
Student loan payment calculator
http://www2.ed.gov/offices/OSFAP/DirectLoan/calc.html
Public Service Loan Forgiveness Program
http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp
Teacher loan cancellation options
http://studentaid.ed.gov/PORTALSWebApp/students/english/teachercancel.js...
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