What To Do About Your Student Loans?

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The United States has a debt crisis. Even if you only looked at credit cards and mortgages, you’ll find more bad debt than in most other countries (I believe we rank 10th when it comes to household debt as a percentage of GDP). While credit and housing debt burden millions of people, the trillions of dollars in student loan debt weighing on Americans serves as perhaps the largest strain on individuals and our economy as a whole.

I’m not looking to paint a doomsday picture with this post. Student loan debt might be a significant issue and financial conundrum in many of your lives, but that doesn’t mean you’re without options for fixing the situation. Debt repayment takes a focused effort and it’s always a little rough in the early going; if you can focus on taking small steps to reduce your monthly payments and attack the total balance, you’ll start to see results and before too long you’ll be racing toward debt-free living.

Loans come with different terms and structures, which plays a large part in the overall confusion and struggle of student borrowers. I’m listing three different tactics people use when trying to reduce their burden, and at least one of them should provide the right option for you.

1. Pay Them Down

Let’s start with the obvious choice that works for everyone. If you have student loan debt, and you pay that debt down, you will no longer have student loan debt. I know this sounds like radical, outside-the-box thinking but you’ll just have to trust me.

As straightforward as this is, there are lots of people who still try to ignore massive balances and defer until their finances get destroyed. While you might have the option to use a federal forgiveness program (which we’ll get into later), there’s no better option than paying down your debts. It might sound better to not spend that money, but paying back loans helps your credit, makes you feel accomplished, and usually requires far less paperwork than any of the alternatives.

How do you pay down thousands of dollars in debt? I am the first to admit it’s easier said than done, especially when you’re young, trying to get a career off the ground and worried about paying rent. It might seem impossible to keep up with the bills, but the right approach makes all the difference.

For starters, getting out of debt has to be the goal. There’s a good chance you’ll feel like student loans are taking over your life, and you probably won’t be happy about it. However, the alternative is to kick that debt down the road and force yourself to deal with it later, potentially when the balance is higher and bad credit ruins your chances of consolidating.

If possible, limit your travel and discretionary spending right after you graduate, freeing up an extra $50 or $100 each month to put toward your loans. It will seem like pushing sand into the ocean at the beginning, with interest charges overshadowing the amount you pay above the minimum. Keep reminding yourself that this is a marathon and not a sprint - a steady effort might feel unrewarding at first, but it will pay off in a big way later on.

After you commit to chipping away debt, it can help to figure out a plan for targeting certain loans. Lots of private and federal student loans come in batches of four or five separate amounts, and some will have higher interest rates than others. I suggest targeting whichever has the lowest balance in an attempt to completely eliminate one of your loans. If you knock one out you get to double your efforts on paying down another balance, which helps you build momentum while making your progress apparent.

The hardest part of paying down massive debt without a huge influx in cash is altering your lifestyle to accommodate these ghastly bills. It might mean living with your parents for a year or working a second job you don’t love. These sacrifices feel enormous in the moment, especially if you have debt-free college friends who are off living it up. I implore you to bite the bullet and live frugally, as it’s virtually impossible to grow wealth while sitting on a massive amount of debt.

Few things will prove more difficult than climbing out of a $100,000 hole. By the same token, it’s hard to find something as rewarding. Don’t sit back and hope the debt will disappear on its own; get out there and show your finances who’s boss.

2. Refinance

Committing to the idea of quickly paying back your student loans is a good first step. The second step - making it happen - is clearly the hard part. I can encourage you to pay off debt all day, but I imagine you’ll find it more helpful if I go over some steps that might make the process easier.

In my opinion, student loan refinancing is underutilized. I have close friends who know a lot about money, but getting unsolicited phone calls and mailings about debt consolidation made them feel like the whole concept was a scam. The fact that so many scammers prey on people in dire financial situations makes the idea of refinancing even scarier.

As long as you go with a reputable company, consolidating private and federal loans can save you tens of thousands of dollars over the long haul. You also benefit from having multiple loans and repayment dates condensed into one lump sum that requires one payment each month. Remember that lenders make a lot of money simply by confusing borrowers to the point that they owe more, so any company looking to simplify the process is already on your side.

For those of you who worry about finding a company that’s on the up and up, I’m going to list three solid options. If any of these companies can refinance your loans and provide a better interest rate, you should jump at the opportunity.  

Splash Financial

Perhaps my favorite thing about Splash is the friendly-neighbor vibe customers get from the company. Splash Financial popped up fairly recently, opening in 2013. The founders started the business with the simple goal of helping friends who were drowning in student loan debt. They weren’t financial execs looking for an angle, but rather people who saw those around them struggling to keep up with their bills and wanted to help.

Of course, there’s more to Splash Financial than just approachable people. Interest rates are competitively low, starting at 3.48%. Unlike some student loan refinancing companies, Splash Financial allows for co-signers and even offers improved rates depending on the financial strength of the secondary signature.

Since the company targets such a specific market, it has conveniently partnered with multiple banks and credit unions that offer excellent terms for student borrowers. Consolidating in this fashion allows for flexible repayment options and the ability to refinance both private and federal loans. Some of you may have had student loan debt since before private and federal loans could be consolidated together; financiers like Splash make sure that’s no longer an issue.

I appreciate how this company focuses on the simple goal of helping people with student loan debt keep their heads above water and get their lives on track. Splash Financial truly wants to help, and anyone with outstanding student loans should call or visit the website to learn more about the terms and programs.

Education Loan Finance

ELFI has been around a little longer than Splash, with managers who have dabbled in student loan financials for over 30 years. The company is backed by SouthEast Bank of Tennessee. This student loan consolidation branch operates exclusively online, allowing borrowers all over the country to access the services.

With a strong bank guaranteeing loans and a clearly targeted demographic, ELFI offers some of the lowest interest rates available, with fixed APRs starting as low as 3.09% and variable rates as low as 2.55%. You have to prove that you qualify in order to get such appealing terms, but for young professionals who took out loans at 17 or 18 and are now in their mid-20s and earning a decent living, this company might just make you an offer you can’t refuse.

Like the best small business loans, competitive student loan refinancing programs can’t work for everyone. With only so much money to go around, stronger applications tend to edge out those on shakier financial ground. However, even if you assume your credit or loan amount precludes you from working with ELFI, it only takes about 3 minutes to find out what kind of rate you might get. On the off chance you can greatly reduce your monthly bills, those few minutes are very much worth your time.

SoFi

There are a few reasons I would choose Splash Financial and Education Loan Finance over SoFi, namely the low rates and customer service. With those caveats established, SoFi is a massive refinancing company with the backing to help a lot of graduates improve their debt situation.

Back in 2012, SoFi was the first of the student loan refinancing companies to combine private and federal loans, putting an end to something that had been a merciless headache for way too long. Years of building a reputation as a company that serves a wide range of clients has positioned SoFi to offer more flexibility than the standard consolidator.

You should expect to have a slightly higher interest rate if you go with SoFi over one of the smaller companies. That said, you probably have a better chance of getting your application accepted with this company, and if the rate SoFi offers is lower than what you’re getting through the original lender, it doesn’t really matter if someone else got a lower rate at another bank.

As most refinancing companies will tell you, it’s possible to refinance more than once. You can go from six loans with 6% interest down to one loan at 5.5%, and then a couple years later when your credit is better and you’re making more money, you might be able to get an even lower rate. Since none of the above companies charges an origination fee or early settlement charge, you should make your primary objective to refinance quickly and get a better rate.

3. Look Into Debt Forgiveness

Before we really dive into this option, I don’t want you to get overly excited and think that anyone and everyone can have their student loan debt wiped away. If you signed off on the loan, expect to be responsible for paying it back. Plan to pay it back, pay it back quickly, and move on with your life.

If, while you work to pay back your debts, you find yourself in one of the following positions, you might be able to get some excellent financial assistance.

Government or Non-Profit Work

If you work for the federal government in any capacity, you should sniff around and see what kind of forgiveness programs are available. If you work full-time for a nonprofit, there’s at least a decent chance you qualify for some form of relief.

In order to be eligible, you need to meet certain criteria in addition to working for a qualifying company. You cannot have defaulted on your loan already, so don’t go thinking you can skip payments for two years then get hired at a non-profit organization and have your bills wiped away. You also have to make 120 payments on your loan while working for a qualified business or institution before forgiveness is offered. Clearly, you have to pay your dues in order to get relief. However, if you’re just learning about this option and you’ve been working at a nonprofit for a few years, this might provide an unexpected solution to your financial strife.

Income-Based Repayment

This works as a potential long-term solution, though it’s better seen as short-term relief. With an IBR program, the amount your pay each month gets capped at 10 or 15% of your discretionary income. This allows working people to tailor their repayment program to align with their career and not cripple them financially. There’s a lot more paperwork involved – you need to offer consistent proof of your earnings to make sure the math works out – but IBR programs help a lot of people trying to get on their feet.

After completing 20 or 25 years of consistent payments, the rest of your debt may be forgiven, depending on the type of program and the amount of the loan.

Forgiveness for Teachers

To ensure teachers are able to pay their bills while putting in countless hours working with our children, there is specific forgiveness for qualifying individuals.

If you meet the criteria, teacher forgiveness programs are an excellent option. Unfortunately, the criteria can be somewhat strict:

● Must work five consecutive full-time years

● Must work at approved school

● Must be a certified or licensed educator

● Must have Direct or Federal Stafford loans

Teachers with the right qualifications who work with the right program should absolutely inquire about this type of assistance. Make sure to read about all the different programs, as some options might be accessible for certain individuals but not for others.

If you ask me point blank what you should do about your student loans, and I have no specific knowledge about your career or financial standing, I’d advise you to work as hard as possible to pay them off. Check out Splash Financial to see if you can get a better rate; go over your monthly spending and see where you can cut corners to increase your payment amount; target certain balances to try and speed up the repayment process. Instead of hoping things will change, become determined to make the change happen.

Getting out of debt requires a tremendous amount of effort and discipline. If it was easy to pay off bills, debt wouldn’t be a multi-trillion dollar industry. You shouldn’t feel alone if you struggle to keep up with these enormous balances, but you should do everything you can to rectify the situation.

If you’ve been ignoring your debt for years while waiting to win the lottery, you have to start being honest with yourself. Pick a course of action and commit to fixing the problem. When you finally put in the work and dig yourself out of that hole, you’ll feel a sense of freedom like you’ve never imagined.

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