Some debt has been or will be forgiven, particularly for low-income earners. But for the millions of Americans with a combined $1.57 trillion in debt outstanding, it’s not a welcome return.
Here are six tips to help you find ways to lower your payments.
1. Determine how much can you afford to pay. A lot can change in three years. Are you earning more or less? The U.S. Department of Education’s Federal Student Aid office has a loan simulator that can help you figure out an affordable repayment strategy for your federal student loans. It also gives you options if you’re struggling to make payments and can help you determine whether it makes sense to consolidate your loans.
2. Check out the SAVE plan. You may be eligible for the Saving on a Valuable Education (SAVE) Plan offered through the Federal Student Aid office. This income-driven option can reduce or even eliminate payments for earners under a certain threshold. Currently, the amount for full forgiveness is $32,800 for single earners, but higher wage earners could save hundreds on their payments.
3. Teacher? Doctor? Nurse? Look into loan forgiveness. There are a number of professions that may be eligible for federal loan forgiveness, cancellation, or discharge. Teachers can receive up to $17,500 of loan forgiveness if they meet certain requirements, while government employees, nonprofit workers, doctors, nurses, or other medical professionals may also be eligible for loan reductions. The Federal Student Aid office has the details.
4. If you need to refinance, be careful. Interest rates have gone up considerably in just the past few years. For the 2020/2021 school year, federal undergraduate student loans had a 2.75% interest rate. For the 2023/2024 school year, the rate has increased to 5.50%. That means the amount today’s students will pay in interest has more than doubled. The table below shows the total interest payments on a $10,000 loan over 20 years. Private student loans have even higher rates, averaging between 5.99% and 13.78% for fixed rate and 5.61% and 13.27% for variable rate.
Total interest payments on a $10,000 loan after 20 years
5. Haven’t started making repayments? Don’t worry … yet. While payments were supposed to commence on October 1, 2023, if you haven’t started paying your federal student loans, your credit score won’t be affected, and you won’t trigger default penalties until October 2024. Note that interest will continue to accrue.
6. Sit down with your financial professional. Your financial professional can help you determine a workable solution for reducing your debt.
Please consult your tax or financial professional for more information.
This material does not constitute financial, tax, legal, or accounting advice, is for informational purposes only, and is not meant as investment advice. Please consult your tax or financial professional before making any decision.
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