Student loans can be made more affordable
Image Source: Hamza Butt
If you owe student loans, you’re not alone. More than $1.4 trillion is owed for educational debt by more than 44 million borrowers across the US including right here in North Carolina. The average student loan payment, according to Student Loan Hero, is more than $350 a month. If this is your situation and you owe more than you can pay each month, there are options to decrease your student loan payments.
Here’s a look at seven ways you can cut your payments if your budget is taking a beating.
#1 Apply for an Income Sensitive Repayment Plan
One of the first things to try, if your monthly federal student loan payments are unmanageable, are income driven options from the federal government. REPAYE (Revised Pay As You Earn) sets your payment based on your disposable income and can be as little as $0 a month. Disposable income is determined by your income tax return’s Adjusted Gross Income (AGI).
To determine disposable income, start with the poverty line which is $12k for an individual, $16k for a household of two and goes up roughly $4k for each additional person in your household. Multiple this number by 1.5 and then deduct from your AGI. From there, the payments should be around 10% of that number. After 20-25 years of payments, remaining balances are forgiven.
#2 Tap a Graduated Repayment Plan
Under the graduated repayment plan, you pay off your loans over ten years, and your payments increase over time with the idea that your earnings will also increase over time. Your payments are initially set lower and increase every two years. Payments are set, at a minimum, to cover at least the accruing interest on your debt and at a maximum of three times the payments under other plans.
#3 Consolidate Your Loans
Most student loans fall under a 10-year repayment plan, and most students graduate owing different types of federal loans. You can consolidate these all into one big bundle, so you only have to deal with one student loan servicer, and the repayment term may be extended up to 30 years. While this protracts how long you’ll be paying back your debt, it also lowers the monthly payments.
#4 Pay Early, Pay Often
One option to lower student loan payments is to begin repaying your loans while you’re still in school. Paying on the principal before the repayment period can give you a jump start on your loans. Many people don’t know that’s an option, but it is. A part-time or summer job while in school can help you chip away at your debt even before you graduate.
#5 Look for a Job With Student Loan Benefits
Some careers come with student loan benefits attached. For instance, jobs in teaching, law enforcement, the military and other public service and government careers can offer a benefit called Public Service Loan Forgiveness (PSLF). You pay on your loans, under the cheapest possible repayment plan for ten years and then remaining balances are forgiven on a tax-free basis.
#6 Try Deferment or Forbearance
Deferment and forbearance both temporarily stop your loan payments. Under one plan, your interest will continue to accrue and, with the other, the government covers your interest for you. This doesn’t help pay your loans but can stop payments temporarily while you get your finances sorted if you’re having a short-term budget crisis.
#7 See If Bankruptcy Can Help
In some cases, filing personal bankruptcy could get your student loans reduced or discharged. Chapter 7 bankruptcy eliminates unsecured debt and can free up money in your budget to pay your student loans. Chapter 13 bankruptcy puts you on a repayment plan to catch up on past-due balances over time. There’s also the option to file an adversary proceeding to try and get student loan discharge.
To find out more about the benefits of using bankruptcy to deal with student loan debt, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.