4 solutions to common student loan issues
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With 45 million student loan borrowers in the US, the student loan debt is a huge burden for many. The average student graduates with $37,500 in debt. So where to even begin?
Yahoo Finance had a team of experts answer your questions. We covered it all in our livestream, and are answering a few more of your questions below.
Yahoo Finance reporter Jeanie Ahn teamed up with HuffPost reporters Casey Bond and Michael Hobbes, and Journey to Launch podcast host Jamilla Souffrant to answer your questions. We covered it all in our livestream, and are answering a more of your questions below.
Q: I have been sick for many years and have my loan deferred. Is there a way to get it legally forgiven?
Yahoo Finance Reporter Jeanie Ahn: If your medical condition has not improved and you’re unable to work because of a permanent disability, you can apply for a total and permanent discharge (TPD). If you’re eligible, you will no longer have to repay the following Federal loans: Direct Loans, Perkins loans, Family Education loans, and TEACH loans. But you need to prove to the Department of Education that you are completely unable to work and earn a living to repay these loans. Private loans, on the other hand, will be tough to get out of.
If you eventually feel better and are able to get back on track, look into one of the four income-driven repayment plans that works best for your budget:
Revised Pay As You Earn Repayment Plan (REPAYE plan)
Pay As You Earn Repayment Plan (PAYE Plan)
Income-Based Repayment Plan (IBR Plan)
Income-Contingent Repayment Plan (ICR Plan)
For all of these plans, your remaining balance is forgiven once you’ve reached the end of the repayment period (typically 20 years). One thing to keep in mind is that the year your remaining balance is forgiven, you will be taxed on that amount.
Q: If I’m already on an income-based repayment plan (I’m on IBR), can I switch to another plan, like PAYE or REPAYE without restarting the clock toward forgiveness? I owe $120k and am wondering if I made the wrong choice.
HuffPost Lifestyle reporter Casey Bond: Yes, you can! According to the Department of Education’s website, if you switch from one income-driven plan to another, payments made under both plans should count toward the 20-25 years required for forgiveness (as long as you meet all the other requirements of the plan(s) as well). Also, if you switch from the standard repayment plan to an income-driven repayment plan, payments you made on the standard plan will count toward those 20-25 years of payments as well.
Q: I have $20K in savings and $40K in private student loans one year out of school. Is it wise to drain the majority or all of my savings just to see the interest savings? What are my options here?
Journey to Launch podcast host Jamilla Souffrant: Great job saving so much at such a young age! What are the interest rates on your student loans? Are they lower than what you can get if you invested some of your savings? It really depends on your debt tolerance and risk tolerance. If you want to aggressively pay off debt regardless of interest rates, go for it. Mathematically it may make more sense to invest some of that as you can earn more on that money invested than what you are paying in interest on the student loans.
Q: What’s the solution? Younger generations are totally inundated with student loan debt, and a lot of us are having a hard time seeing a light at the end of the tunnel. What has to happen for us to finally make a change?
HuffPost Business Reporter Michael Hobbes: The most important thing to do is get involved politically. States and cities are working on plans to make college cheaper. Contact all your representatives (from the city council to the U.S. Senate) and ask them what they’re doing to make college cheaper and relieve student debt. Politicians like to pretend that their hands are tied on issues like college spending and bank regulation, but that changes once they start getting pressure from their constituents. Become that pressure.
More broadly, we need to change the way we think about the economy. Twenty years ago, Harvard economist Amartya Sen won a Nobel prize for showing that no famine had ever occurred in a functioning democracy. Before, we thought famines happened because populations didn’t have enough food. What Sen showed was that famines happened because of how food was distributed — politicians took it away from the people growing it and never gave it back.
We need to start thinking about poverty, low wages and, yes, high education costs the same way. From college endowments to military spending, this country has the resources to make college free and relieve student debt. Of course it does. We’ve simply chosen to distribute it to other things and to other people.
I know that’s not much help when you get this month’s student loan invoice. But even as we all do our best to pay off our debts however we can, we need to make sure we don’t fall into the trap of thinking that this is inevitable or natural or something we’ve done wrong. We’re the only country where college costs this much. And we need to start demanding that it doesn’t.
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