7 Ways to Reduce Student Loan Debt
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Published January 25th 2013
Straightforward options to assist students in reducing loans
Graduating with large debts is a daunting prospect for many university students. Furthermore, with the cost of higher education rising each year and the availability of jobs for new graduates on the decline, students are borrowing large funds with no guarantee of employment or the ability to pay back their loans after graduation. This can be a disheartening situation, but there are several straightforward options available to help reduce loan debt.
Note: Although student loan debt is a worldwide issue, American students have typically graduated with staggering amounts of debt. Currently, the USA has over 1 trillion dollars in student loan debt, so the following options were written with US-based student loans in mind.
National or International Service Programs
Peace Corps: Volunteers may defer repayment of Stafford, Perkins, direct loans, consolidation loans, and some commercial loans. There is a partial cancellation benefit for students with Perkins loans (15 to 70% cancellation depending on length of service).
AmeriCorps: Volunteers receive the Segal Education award ($7400 for 2012) after a term of service (12 months or pro-rated for part-time service). There are currently 94 American universities that will match the award for their students.
National Guard: Students who join the Army National Guard may be eligible for up to $10,000 for student loan repayment.
Teaching in Underprivileged Areas
Those who teach full-time in an elementary or secondary school that serves low-income families are eligible for partial Perkins loan forgiveness: 15% for the first and second years of service, 20% for the third and fourth years of service, and 30% for the fifth year of service. The American Federation of Teachers has a database of additional loan forgiveness programs for teachers.
Public Service Professions
Those who enter medical, legal, social work, or clinical research fields and practice in underserved areas or non-profit positions may qualify for the Public Service Loan Forgiveness program. The American Association of Medical Colleges also maintains a database of loan forgiveness programs for medical school students. The National Institute of Health offers a loan repayment program for medical researchers.
Other Professions
The main opportunities for loan forgiveness are for those engaged in public service professions, teaching, or volunteer service. However, the Federal Student Loan Repayment Program allows agencies to pay federally insured student loans on behalf of employees. The John R. Justice Student Loan Repayment Program assists state and federal public defenders and federal prosecutors. There are also many programs available for those in the military.
Relocation
Some towns that have suffered population losses are hoping to attract new graduates to fill the gap by paying for student loans. Niagara Falls, New York will pay $3500 per year for two years, while 50 counties in Kansas are offering payments of up to $15,000 for five years residence. Nebraska and other Midwestern state legislatures have also expressed interest in the program.
Income-Based Repayment
For individuals with high debt relative to earnings, monthly loan payments can be reduced and any remaining debt is forgiven after 25 years. See FinAid.org for more information about the program and eligibility.
Deferment or Forbearance
If you are struggling to make payments on your student loan, you may be eligible for a deferment or forbearance (i.e. postponement of payments for such reasons as economic hardship, return to school, or unemployment). Be aware that such agreements are not forgiveness programs and interest may still accumulate during the period of deferment/forbearance. At any rate, it is important that you take steps to avoid defaulting on your loan (i.e. failing to make a payment for 270 days or more), as this can negatively affect your credit rating and your eligibility for future financial aid.
Get Advice
Before making serious decisions about your personal finances, it is important to discuss such matters with a professional or financial adviser. Advice is also available via financial aid counselors at universities or through the Department of Education. Your student loan provider will also be able to provide advice about changing your payment plan or whether you qualify for postponing payments.
Yale Law School Library. Undergrad tuition at Yale is currently $55,000 USD per year. Unfortunately, not an uncommon figure.
Note: Although student loan debt is a worldwide issue, American students have typically graduated with staggering amounts of debt. Currently, the USA has over 1 trillion dollars in student loan debt, so the following options were written with US-based student loans in mind.
National or International Service Programs
Peace Corps: Volunteers may defer repayment of Stafford, Perkins, direct loans, consolidation loans, and some commercial loans. There is a partial cancellation benefit for students with Perkins loans (15 to 70% cancellation depending on length of service).
AmeriCorps: Volunteers receive the Segal Education award ($7400 for 2012) after a term of service (12 months or pro-rated for part-time service). There are currently 94 American universities that will match the award for their students.
National Guard: Students who join the Army National Guard may be eligible for up to $10,000 for student loan repayment.
Teaching in Underprivileged Areas
Those who teach full-time in an elementary or secondary school that serves low-income families are eligible for partial Perkins loan forgiveness: 15% for the first and second years of service, 20% for the third and fourth years of service, and 30% for the fifth year of service. The American Federation of Teachers has a database of additional loan forgiveness programs for teachers.
Public Service Professions
Other Professions
The main opportunities for loan forgiveness are for those engaged in public service professions, teaching, or volunteer service. However, the Federal Student Loan Repayment Program allows agencies to pay federally insured student loans on behalf of employees. The John R. Justice Student Loan Repayment Program assists state and federal public defenders and federal prosecutors. There are also many programs available for those in the military.
Relocation
Some towns that have suffered population losses are hoping to attract new graduates to fill the gap by paying for student loans. Niagara Falls, New York will pay $3500 per year for two years, while 50 counties in Kansas are offering payments of up to $15,000 for five years residence. Nebraska and other Midwestern state legislatures have also expressed interest in the program.
Income-Based Repayment
For individuals with high debt relative to earnings, monthly loan payments can be reduced and any remaining debt is forgiven after 25 years. See FinAid.org for more information about the program and eligibility.
Deferment or Forbearance
If you are struggling to make payments on your student loan, you may be eligible for a deferment or forbearance (i.e. postponement of payments for such reasons as economic hardship, return to school, or unemployment). Be aware that such agreements are not forgiveness programs and interest may still accumulate during the period of deferment/forbearance. At any rate, it is important that you take steps to avoid defaulting on your loan (i.e. failing to make a payment for 270 days or more), as this can negatively affect your credit rating and your eligibility for future financial aid.
Get Advice
Before making serious decisions about your personal finances, it is important to discuss such matters with a professional or financial adviser. Advice is also available via financial aid counselors at universities or through the Department of Education. Your student loan provider will also be able to provide advice about changing your payment plan or whether you qualify for postponing payments.
Why? Programs, options, and forgiveness schemes to reduce loan debt
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