October 21, 2014 | By RGR Marketing Blog

Understanding Student Loan Debt

If you’ve graduated from college or grad school, chances are very high that you headed out into the working world with at least some amount of student loan debt. According to the Project on Student Loan Debt, the following statistics from 2014 paint a scary picture:

As of 2012, 71% of all students graduating from 4-year colleges had student loan debt +  Average debt levels for all graduating seniors with student loans rose nearly 25% from 2011 to 2012, to almost $30,000 1.3 million students are graduating with student loan debt each year

With all that in mind, let’s look at some of the basic things that you need to know about paying off your student loan debt. And if you’re in the student loan debt consolidation business and actively working with grads to help them consolidate their student loans, use this article as a guide to get acquainted with your clients’ main concerns.

#1 Know What Kind of Loans You Actually Have

Although the federal government stands as the biggest lender, many student loans come from private sources. The source of the confusion may derive from the fact that some government loans are direct, while other loans are backed by the U.S. government, but owned by a private lender. This second type of loan is often referred to as an FFEL loan, which stands for Federal Family Education Loans. Any work on student loan debt demands that you are well informed. Click on the National Student Loan Data System, and search for Financial Aid Review to determine exactly what kind of loans you have.

#2 Why Are My Monthly Payments So High?

If you have federal student loans, you can lower the burden of your monthly debt payment through a program known as income-based repayment. Participating in such a program means that your monthly debt payment is never more than 15% of your current income. Just be forewarned: instead of paying back your debt over ten years, this will create a 25-year timeline for repayment.

If you have private loans, then get in touch directly with your lender, and let them know about your situation. In many cases, they will offer an extended repayment plan for your student loan debt.

#3 What’s With All the Student Loan Bills?

For many students, the same thing happens every month – a ton of different loan payment bills show up in the mail, and you’re stuck wondering why there are so many payments, or confused as to whether or not you’ve actually paid them. This is where student loan debt consolidation comes in. Again, government loans and private loans follow different paths when it comes to consolidation, so be sure to do your research. Often, seeking the advice of a qualified student loan debt consolidation counselor will be your best bet.

#4 Will My Student Loan Debt Ever Go Away?

If you have direct federal loans, there is a program called Public Service Loan Forgiveness, that allows a person to work for ten years in a qualifying public service job, after which time all remaining student loan debt will be forgiven. Many qualifying jobs exist in federal, state, and even local government, as well as some non-profits.

#5 What’s the Difference Between Different Types of Non-Payment?

If you’ve fallen on hard times, there are options for you when it comes to paying back student loan debt. Deferment is when you and your lender enter into an agreement that allows you to temporarily suspend your monthly payments. Often, your loan will continue to accrue interest during this period, though in some cases, it will not. A Forbearance is also a temporary stoppage in payment, although during this period you will definitely continue to accrue interest on your debt.

And finally, Default is the status into which you will be placed after approximately nine months of not paying off your monthly debt. The debt is still yours to pay off, though now it may be sent to collections, you could be sued, and your wages may be subject to garnishment.

#6 How Can I Pay Off My Student Loan Debt Faster?

Start by taking advantage of literally every incentive that your lender offers, especially when it’s time to consolidate. If you can shave off .25% of your interest rate just by opting in to an automatic debit payment plan, do it. If you do consolidate your loan, be sure to read through the agreement carefully, and avoid variable interest rates if you can. That original interest rate that seemed so low at first, can come back to bite you in a decade as rates rise.

Be sure to also research your payment plan options, as there are repayment plans that peg your monthly bill against your income. However, delaying payment and paying the minimum are surefire ways to rack up more debt. Although you are offered a “minimum” monthly payment, you can always pay a little bit more each month to reduce your total amount over the life of the loan. And be sure that whatever payment you are making is correctly applied to the principal of the loan, rather than any kind of “future payment.”

What about splitting up your monthly payments into two bi-monthly payments? Though this means that you are making an extra payment every year, bi-weekly payments can be a huge savings tool.

#7 Can I Use My Student Loan Debt as a Write-off on My Taxes?

If you’ve heard the phrase – “student loan debt is good debt to have” – here’s what they were referring to. The IRS does allow for a student loan interest deduction of up to $2500, which allows you to write off any student loan interest that you paid during the year on qualified student loans. Check the IRS website for more details.

#8 Can Student Loan Debt Be Written Off in Bankruptcy?

You may have heard that student loan debt can never be written off in bankruptcy, but that’s not entirely true. Yes, it will be a significant uphill battle to prove that your student loan is worthy of discharge in bankruptcy, but in some rare cases, it has been done. If you can convince a judge that your loans represent an Undue Hardship (as determined in bankruptcy court), then they may be discharged. But in almost all cases, you must repay student loan debt even if you declare bankruptcy.

[Photo Credit: DebtHelper]

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