Debt, Student Loans, Part 2

August 21, 2018

In June, Forbes published an article about the student loan debt crisis. Among the concerning statistics shared in the article, there was this little tidbit…student loan debt has now surpassed credit card and auto loan debt, making it the second highest consumer debt category, totaling more than $1.5 trillion.

Debt Graphic

Unfortunately, dealing with student loan debt is very common. The cost of college skyrocketed by 213% between 1987 and 2017. (source: https://www.cnbc.com/2017/11/29/how-much-college-tuition-has-increased-from-1988-to-2018.html) The majority of debt comes from people who go to graduate/doctoral/professional schools, but studies show that about 45 million Americans (source: https://studentloans.net/student-loan-debt-statistics ) have student loan debt.

This amount of student loan debt can seem overwhelming. And, it is almost impossible to get out of paying student loan debt. Unlike other types of debt, student loan debt is not eligible for most bankruptcy proceedings.

So what can you do? Here are some ideas:

  1. Know your numbers. Just like with credit card debt, you need to figure out exactly what you owe in student loans, to whom you owe it, and what the interest rate is. You’ll also need to identify what repayment plan options are available.
  2. Consider consolidation. If you have several loans, you may consider consolidating them into one loan, if you can get a lower interest rate. If you do, you will only have one payment to be responsible for, rather than multiple. Note that I think you shouldn’t consolidate federal loans with private student loans. You may also lose out on certain repayment options if you consolidate, so be sure you know all of the ins’ and out’s before you do.
  3. Sign up for auto-debit. Many times, if you set up your loan payments to be automatically deducted from your bank account each month, you can save half a point on interest rates.
  4. Try to get student loan debt forgiven. One thing I believe might be great about student loan debt vs. credit card debt is that you may be able to either have the company you work for pay all or part of your loans for you, OR have your debt forgiven. I am here to tell you, in my opinion, this is amazing. My husband is a teacher and has taught in Flint his entire career. Because he taught special education in a school that served “low-income students,” he was eligible for debt forgiveness. I mention this for illustrative purposes only, keeping in mind each individual’s situation may vary. The two main ways to have student loans forgiven through the government, include the Teacher Loan Forgiveness program and the Public Service Loan Forgiveness program. The public service program is for government employees or employees of non-profits. Obviously, there are eligibility requirements, but if you are a teacher or a government/non-profit employee, do look into these. There are also several loan forgiveness programs for doctors, nurses, and lawyers. Most of these involve working for a set period of time at either a critical shortage facility or in the non-profit sector, or what would be considered public service or the military. It may be worth giving back for a few years, to have your debt forgiven. Finally, even the automotive industry has some forgiveness programs through SEMA, the Specialty Equipment Marketing Association.
  5. Get a job with a company that pays towards your loans. Apparently the new hot employee benefit is student loan repayments, although typically it’s capped at a certain amount per year, like $2,000. But as my husband always says, that is definitely better than a kick in the head. Only a handful of companies offer this right now, so do your homework.
  6. Side hustle your way out. This is how people write their own blog articles about “how I paid off $40k of student loan debt in 10 months.” I believe that it’s virtually impossible to do it that way unless you take a side job and then put all of that money towards your debt. This may be an option for you if you are single, or even just childless, and also extremely disciplined.
  7. Use an app to help. If you have an apple device, there is an app called ChangEd that essentially “rounds up” your purchases to save your pennies that you theoretically won’t miss, to save towards your debt. Once you accumulate $100, it sends in that payment to your student loan. Also, the website StudentLoanHero has a tool to help, and regular debt payoff apps (see my blog on credit card debt) can help as well. You can also sign up for Upromise, which is a website where you can connect your credit cards and bank account, and when you shop online or at certain retailers, you can earn money with purchases. That money is then applied to your student loan.
  8. Don’t stop saving. You should ALSO save for retirement and emergencies. Just like paying off credit card debt, please don’t put your future on hold until you pay off your student loan debt. I believe it is important to take advantage of compound interest while you are young, and have time on your side, so you should also put money in your retirement accounts and emergency savings, even if you can’t do very much right now.

I don’t necessarily recommend this, but you can also look into a deferment or a forbearance. These options allow you to stop paying on your loans, or pay a reduced amount, if you meet certain qualifications, like, you are going to graduate school, are in the military, or genuinely have a hardship. Unfortunately, with some of these options, the interest on the loans keeps accruing, so you may end up further behind. And please don’t consider taking a loan from your 401(k)! More about that next time, when I talk about good vs. bad debt.

Any opinions are those of Jill Carr and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James does not endorse the opinions or services of independent third-party entities or individuals named herein.

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