Education is the gate of the future and student loans were created to make education access easier for everybody. College can be very expensive for many people with the average annual cost that could reach around $25,500. Student loan can be very helpful for families and individuals who want to get a better access for education, but unable to afford it. However, the loan can be very beneficial, but can also backfire if we are unable to maintain it properly or get the right strategy. The problem would occur when we have finished our study. None of us wants to work so hard just to pay our student loans. Therefore, it is so important to understand on how to use our student loans properly and how to get rid of student loans when we have finished studying.
Based on a research in 2010, student loans debt is high enough until it surpasss credit card debts in United State. The amount reached more than $1 trillion, setting it’s record as the single highest debt besides home loans.
Another thing we have to understand when it comes to student loans is that we can’t declare bankruptcy and get away with it. A bankruptcy relief is almost impossible unless the person is able to give a strong prove; apart from it, the requirements of declaring bankruptcy is extremely strict, making it so difficult to pass.
Taking a student loan is a big decision. As mentioned before, the amount can be so high that could stick to us for the rest of our life. We need to make a smart move when it comes to student loans. Find these 10 ways on how to get rid of student loans for a debt free life.
1. Always Keep in Track of Everything
When having student loans, we have to understand and keep track of every transaction. Make sure to track the balance, repayment and lender. It’s also important for us to know the status of the loans. We can login to the website provided by the government to know the status. If some of the loans are not listed, then most probably it comes from private lender. To track the unlisted loans, make sure to find a billing statement or the paperwork that we’ve signed. We can also contact the school to track the loans. This is very important because none of us wants to get a surprising loan amount at the end of the study.
2. Update Our Contact
This is related to the first point where we have to understand the source of the loan. Whenever we change our phone number, make sure to inform the lender because if the lender tried to contact us and we are unreachable, we will end up losing the loans. Some people might be having unwanted call from the lender, if we are unlucky and need to deal with this kind of lender, then make sure to talk with them about it. The lender should help us to solve the problem instead of terrorizing us with it.
If we have a problem with the billing, avoiding the lenders is not a solution. Ignoring the bill won’t help us to get rid of student loans. If we kept ignoring it, we would need to deal with law and we will get a long- term consequences.
3. Choose The Right Repayment Method
When the student loans come due, the loan payment will be set automatically on 10 years repayment. At this time, we need to make an exact calculation of whether or not we can repay the loan in 10 years. If this standard payment seems to be too hard for us to cover then we can change the repayment plan above 10 years. However, if we change to repayment plan longer than 10 years, we have to remember that the interest we need to pay would be higher and it might be higher than the loan itself.
Some repayment methods we might want to consider are repayment plans based on our income such as Revise Pay as You Earn or Income Based Repayment. Using these methods, our monthly payment will come in reasonable percentage of our yearly income. Not only that, with this repayment method, we might be eligible for debt waiving for the remaining debt after no more than 25 years.
Before we make an agreement, we have to understand that not all loans are applicable for Income Based Payment. Private loan is one of them. However, when it comes to private loans, we can always negotiate with the lender. For example, we might be able to request for interest only payment for some periods in a year. It’s very important for us to read the contract and all papers before we make the agreement.
4. Consolidate The Loans
If extending the payment period is still too hard for us and we are not eligible for Income Based Repayment, then we might want to consolidate the loans we have. Consolidating federal and private loans into a single loan can be a good option, but we have to remember that we might losing some of the benefits and protections of the loans.
It’s recommended to consolidate the loans into a private loan instead of the other way around. With private financing, the amount of interest would be lower, so we can save more money and get rid of student loans fast.
Income Based Repayment or IBR works if we have loans before July 2014, which means the repayment won’t be higher than 15% and with IBR, we will make payment for 25 years and when we reach that point, our loan would be forgiven. The total yet actual amount of our discretionary income will be determined by our tax return and family size. Therefore, make sure to check the student loan site to help us determine the total amount.
Pay As You Earn Repayment ( PAYE) is similar to IBR. PAYE would work effectively as we will not pay more than 10% of our income and the repayment would be forgiven after 20 years. We can also find RePAYE, which is a modified version of PAYE. It’s applicable for those who borrow student loans after 17 December 2015. Using this program, the loan will be waived after 20 years. The best thing about this program is that it includes a subsidy that would cover 50% of the loan interest.
5. Prioritize Student Loans
Many people think that they will repay their student loans within or after 10 years. However, the fact shows that many people spend about 20 years or more to repay all the loans. Therefore, many people are still dealing with this debt when they are in their 40s or 50s.
One of the tricks on how to get rid of student loans fast is by using our 401(K) money. Many young people are not even thinking about 401(K) money, especially when they are in school ages. However, few percentage of 401(K) total amount could cover student loans and leave us debt free life. It is said that we are not recommended to take our 401(K) before the time, but if it’s possible to take some to repay the potential long-term debt and give us financial freedom, then taking a bit of the percentage would worth it.
When we have student loans, it’s important for us to prioritize it above all other loans. Don’t make a big investment before we repay our student payment. This should be our priority right after our 401(K). Never take a home loan if we still have student loans to pay. It will give us a double debt and we minimize the change to pay both loans. None of us want that, so make sure to put student loans as priority first.
6. Find Loan Forgiveness
Related to the previous points on loan forgiveness, there are some programs that we can use if we are working in specific types of field or companies. One of them is Public Service Loan Forgiveness, a federal program that forgives remaining student loan after 10 years of qualified payments for those who are working in public service related jobs such as non- profit organization, government and some other public service jobs.
Apart from that, there are also some programs that could release staff from student loans for those who are working as nurses, teacher, volunteers or other service- based professions. Check on the detailed info before applying to college and student loans.
7. Pay The Expensive Loans First
If we have more than one loans and thinking about paying one ahead of the due date, then it’s worth considering to pay the most expensive one first. The most expensive loans have the most interest. With the high interest, of course we will need to pay higher amount of money. After so many years, then total amount of the interest itself could be higher than the loan. It would be so financially helpful to pay private loans first as federal loans are usually lower in interest and has more repayment options and protections.
8. Set Your Strategy
Some of us have single loans and some have multiple loans. For us who are having multiple student loans, then we have to remember that it will also come with different interest rates and the way we pay them could make a big difference on the total amount of interest we pay and how long it takes to pay everything off.
9. Pay Every Bill
No matter how hard it it to pay the student loans, we have to make sure to pay every bill we receive. Ignoring the bills could give us a serious consequences and could lead to a lifetime problem. For federal loans, the problem will start after nine month of non- payment. After nine months of non- payment, we will hit the total balance due, the total amount of debt will increase dramatically, credit score will be ruined and the government is able to seize our tax refund and deduct our wages. If we think it’s bad, then private loan could be worse. The balance due of private loan could happen way quicker than federal loan. Make sure to talk to the lender once we find that we could be in danger or balance due.
Whenever we have an extra income, it’s best to pay more than the required monthly payment. This will help us lower the amount of interest we have to pay. When we do this, make sure to send a written request, so we are still billed on the following month.
10. Seek for A Help
If we are in trouble and unable to make a payment because of some factors such as unemployment, health problem or any unexpected financial problem, then we can always seek for a help by managing our federal student loans. There are some ways to postpone our student loans in temporary manner like forbearance and deferments. If we are using forbearance, it would be better to contact our private lender as the amount of interest could be higher. Ask for the lender if we could do interest – only payment that we can afford. Unemployment deferment is perfect for us who are in the process of looking for a job.
The high expense of student loans making it a very big deal. It’s very important for us to learn every details of student loan even before we sign the papers. It’s also very important to find reputable and trustworthy lenders who will help and understand our repayment obligation.
Having a good knowledge about the loan, how to strategize and make sure to pay all the bills would be the basic ways on how to get rid of student loans. Try to stay on track on the payment and if we can’t afford it in temporary manner, try to pay the interest only and if we have extra money, try to cover the next month payment. Don’t let the expensive loan to stop us from getting the education or title we want. It only takes discipline, consistency and responsibility to be able to cover everything.