At the time you applied for and were granted a federal student loan, there's very little chance that you were thinking about how long it would take you to pay it back. We're all a bit naive and wet behind the ears when just starting our college studies. Buoyed by the prospect of a "well paying job" after your time at university, you, like many others, most likely figured that paying back your student loan debt would be a piece of cake.
As we all know, student loans are a whole lot
less fun after college ends. No one likes the harsh reality of knowing that a large portion of your (newly acquired) paychecks will go toward paying back your student loans. Real life take home pay is usually a lot less than you thought it would be, and subtracting even more money from your net income can feel almost physically painful.
On top of how depressing it can be to fully realize just how much you owe, it can feel like you'll be paying for your student loans forever
. However, there are things you can do to make sure that feeling doesn't become your reality.
Stop deferment as soon as possible
As a general rule, most student loans, both federal and private, will continue to accrue interest while in deferment. This means the longer you put them off, the more you're going to owe.
Avoid income-based repayment plans
Also known as 'pay as you earn' or 'income contingent' plans, these repayment methods are geared toward college graduates who can demonstrate at least a partial financial hardship
. In theory, limiting how much borrowers have to repay each month based on how much money they're earning might sound like a good idea. The problem with dramatically lowering your monthly loan payments again lies in the staggering amount of interest that will be tacked onto the total amount due.
Be aware of income taxes if considering loan forgiveness programs
There are currently a number of federal and New Jersey loan forgiveness programs
available for borrowers who have made a set number of payments over a given time period (usually 10, 20 or 25 years). While just knowing that the remainder of your loan will eventually be forgiven can be a light at the end of a tunnel, you may have to pay income tax on the amount that is forgiven.
If you've deferred your loan several times and then paid the lowest payments possible via income-based repayment, the interest will have been compounding for a long time. That interest will be added to the remaining balance, which may be a significant sum by the time you qualify for forgiveness. While you will be able to celebrate the debt forgiveness, you'll still need to foot the hefty NJ income tax bill.
Refinance and consolidate your student loans
One of the best
steps to take when trying to get a handle on your student loan debt is to lower your interest rate
. You should first consolidate (combine) any loans that are eligible for refinancing. If your original student loan interest rates were high, you'll save a lot of money over the course of your repayment plan by refinancing to get a lower rate. This can also shorten the length of time required for you to pay back your loans and, in turn, lower the amount of income taxes you'll owe on any remaining balance if you qualify for forgiveness.
Earmark your yearly tax refund for student loan repayment
Each time you receive extra money, whether from your tax refund, a lawsuit settlement, an inheritance, etc., resist the urge to spend it frivolously and instead apply as much of the total windfall to your student loan balance. You can do the same every time you receive a raise at work, too. Set aside the extra income and pay that much above and beyond your monthly minimum loan payment.
Look for employment opportunities that offer loan forgiveness
The Public Service Loan Forgiveness Program
forgives student loan debt in teaching and certain public and nonprofit jobs. You'll have to meet a whole host of requirements in order to have your loans forgiven through your job, but it is something extremely well worth looking into.
In addition to the above strategies to get out of student loan debt quickly, you should consistently
re-work your budget so that you can trim as much excess spending as possible. This will allow you to put more of your income toward repaying your debts faster. Your budget will only be stilted temporarily - so remind yourself that the end justifies the means
Image: "Calculator and Money" by Reyner Media - licensed under CC by 2.0