Each class owes more than the year before them, although this trend may be slowing, according to the 14th annual report on student debt by The Institute for College Access & Success (TICAS). About 2 in 3 members of the Class of 2018 had student loan debt. These borrowers owed an average of $29,200 upon graduation, 2 percent higher than the Class of 2017 but 59% higher than the Class of 2004 and 133% higher than the Class of 1996.
Count yourself among the 45 million American adults with student debt? Here are 6 tips for managing your student loan debt in 2020:
If you’re able to, the best way of saving money on student debt payments is by refinancing. A student loan refinance is a new loan from a private lender that replaces your old federal and/or private student loans. APRs from top student loan refinancing programs go as low as 2.5%, which is way lower than federal loan rates and also lower than most people get on their first private loan.
There is one major catch to student loan refinancing: only around 10% of student debt holders are in a position to qualify. Unlike the federal government, private lenders have strict eligibility requirements. Therefore, only borrowers with a strong credit score and solid income (or who can bring a co-signer who meets the criteria) are considered for refinancing.
Click here for tips on qualifying for a student debt refinance.
2. State Refinancing
The federal government does not have a student loan refinance program, but 12 states do. These states are: Alaska, Connecticut, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, New Hampshire, New Jersey, North Dakota, Rhode Island, and South Carolina. Several other states, including Montana, Nevada, and New York are considering introducing refinance programs.
State student loan refinance programs are aimed at borrowers who don’t qualify for a private refinance. Of course, each state program operates differently and the rates also vary. For example, Iowa offers refinancing from 3.25% and Rhode Island from 3.49%, which is higher than private lenders but lower than federal loans.
Click here for a guide on state student loan refinancing.
3. Debt Consolidation Loan
The federal government offers something similar, but not the same, as refinancing: a direct consolidation loan. Most federal student loans are eligible for consolidation. A direct consolidation loan offers the benefit of a single monthly payment instead of multiple payments. It can give you access to new loan repayment plans and loan forgiveness programs. However, it won’t lower your interest rate and it may also involve the loss of benefits attached to your original loans.
A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. Although it won’t earn you a lower rate, it does involve the option of a longer repayment term (up to 30 years), which may have the effect of lowering your monthly payment.
Click here to learn how about debt consolidation loans.
4. Income-Driven Repayment
Income-driven repayment, also known as income-based repayment, is a federal government program that resets your monthly student loan payments at an affordable amount. Unlike a regular loan, your monthly payment is based primarily on how much you earn each month, not on how much you owe. The main benefit is a lower monthly payment and more time to pay off your debt. The main drawback is you end up paying more interest over the life of the loan.
Federal Student Aid, the office of the US Department of Education in charge of the program, offers 4 types of income-driven repayment plans: Revised Pay As You Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR); and Income-Contingent Repayment Plan (ICR). The plans differ in terms of how much of your discretionary income goes toward your monthly payment—although it usually ranges from 10%-20%.
Click here to read more about income-driven repayment plans.
5. Loan Forgiveness
Several Democratic presidential hopefuls have proposed loan forgiveness plans that would see the federal government pay off all or a portion of America’s student debt. Whether any of these candidates make it to the White House–and whether they would be able to implement these plans–remains to be seen. However, it’s worth noting that the federal government already operates certain student loan forgiveness programs.
These are some of the programs that involve complete or partial loan forgiveness.
- Public Service Loan Forgiveness. For employees of federal, state, or local government organizations, and certain non-profits.
- Teacher Loan Forgiveness. For people who have taught full-time in a low-income school or education service agency for a minimum 5 consecutive years.
- Perkins Loan Cancelation. For teachers serving low-income schools or children with disabilities. Also available to teachers of math, science, foreign languages, or other fields classified as having a shortage of qualified teachers.
- Student debt may also be canceled in the event of disability, death, bankruptcy, school closure, withdrawal from school, or if the school falsely certified the student’s eligibility for the loan.
Click here to learn more about qualifying for loan forgiveness.
6. Keep Paying at Current Interest
If you’ve explored all other options without success, you may have no choice but to keep paying off your student debt at your existing rate – for now. The good news is that there are some benefits to having student debt. For example, you can deduct up to $2,500 in interest payments on qualified student loans from your annual income tax payments. Additionally, some large employers offer a benefit called employer student loan contributions, whereby the employer pays back student loans on your behalf, which carries tax benefits.
Finding the Best Solution to Fit Your Needs
When it comes to managing student debt, there are all sorts of programs for all sorts of debt holders. Your best option depends on factors that include what type of debt you have, where you live, where you work, and what your credit score looks like. Whatever your situation, it’s worth taking the time to compare the different options and, if you opt for a refinance, comparing different providers.