Student loans has been a hot topic of late, which is not surprise given there are around 43 million Americans dealing with some form of active or delinquent student debt.
Based on reports from the WSJ and data company MeasureOne, Americans owe around $1.6 trillion in federal student loans and more than $130 billion in private student loans. About 5.2 million federal borrowers are in default.
So it is not surprising that student loans are one of the most common forms of debt and can easily turn into a life-long hassle if you aren’t careful.
If you are a recent graduate, the best thing that you can do for the state of your finances is to make paying off your student debt a priority. Here are a few ways to get your student loans taken care of as early as possible in your career. There are also several new government initiatives and relief programs now in place to help.
1. Pay more than required to reduce principal
When your first student loan payments are due, your lenders suggest a minimum payment, usually based on a ten year repayment schedule. If you are able to afford it, it’s best to pay more than the suggested amount, which can help reduce interest rates.
Be sure, however, to notify your lender in writing your intent to do so, as paying extra each month may only roll over to next month’s payment, in effect not reducing your principal.
2. Know exactly how much you owe, when payments are due, and how to get in touch with your lenders if you have questions.
Your school’s financial aid office is the best source of information about student loans. If you have any questions about when and how to make payments, or if you need to update your contact information, be sure to contact the office and clear things up.
The worst thing you can do is go MIA when it comes time to repay student loans and default, which can ruin your credit score. Staying in touch is key.
3. Look into government loan forgiveness programs.
Many recent graduates don’t have a specific career path mapped out once they leave school. If you’d like to take a few years off to help your community or others in need, consider applying to several programs offered by the federal government that can effectively forgive your student loan debt.
Examples of such programs include AmeriCorps, the Peace Corps, and the National Guard. Teaching in specific low-income communities can also serve to forgive student debt.
Of late student debt forgiveness has been included in pandemic stimulus programs (like the ARPA) which provided have reduced the total amount of student debt by around $16 billion in total across 680,000 borrowers, which works out to around 23,500 per borrower on average.
Student loan repayments have also been suspended by the government during the pandemic, since mid 2020, with the latest extension due to expire on May 1, 2022. This will ensure tax refunds are not offset due to delinquent loans. Most reputable tax software packages account for this when when filing your return.
There is even talk by the Biden administration to forgive millions more in student loans under the build back better act, but has stalled in Congress. I will post updates if this changes.
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4. Loan consolidation is a good option for some.
While paying off your loans quickly is best for your finances in the long-term, if you’re interested in reducing your monthly payment and making it easier to keep track of your payments, consolidating your loans may be helpful.
By consolidating, you can extend the repayment schedule of your loans, and you can also put everything into one easy payment. But be aware of some of the hidden costs and potentially higher rates with consolidation.
5. If you want to pay off some loans ahead of schedule, work on the most expensive ones first.
If you have multiple student loans and would like to get rid of one or more as quickly as possible, pay off the ones with the highest interest rates.
It’s also good to prioritize private loans, as their interest rates are more often than not higher than federal loans, and they don’t have the repayment flexibility that government loans tend to have either.
While student debt is something that more and more of us have to tackle considering the rising cost of higher education, if you’re smart about it, you can get rid of the debt in no time. Just be aware, stay on top of things, and don’t panic. A debt-free future is closer than you think.
3 thoughts on “5 Tips for Paying Off Student Debt Faster Including via New Tax Breaks and Government Forgiveness Programs”
@PDL, Yes this information is true. Typically any type of job that gives back to the community, like teaching, can put you in line to have your loan forgiven, if not in full, then partially.
Concerning #3, student loan forgiveness… Is that really true? I knew that those kinds of things allowed deferment, so you didn’t need to make payments on the loan, but forgiveness sounds like you wouldn’t need to pay back some of the loan at all.
Yes, under ARPA act (2021) there are several provisions passed to forgive loans for certain borrowers