How to tackle student loan debt

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If older Americans could send a message to new high school graduates, it sure would be this: Do whatever you can to avoid student debt.

Student loan debt in the United States reached $ 1.59 trillion as of March 21, 2021, the United States Department of Education reported. This represents 42.9 million borrowers and 90% of loans are guaranteed by the federal government.

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The highest average debt among borrowers is among people aged 50 to 61, according to Bloomberg. They have an average balance of $ 43,400, owed to loans they took out to retrain after the Great Recession of 2008, loans to help their children and, in some cases, loans for their first trips to school. university. And carrying such debt puts them in financial hardship, as their careers are expected to come to an end, which will impact their retirement.

It is, however, possible to get out of student debt and not see it crush your financial future. If you’re having trouble paying or finding that student debt is preventing you from reaching your financial goals, read on. And if you’re just starting your college journey, get advice on borrowing.

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Change job

Even if you like where you work, finding a new job could help you ease your student loan debt. This is because many employers, especially the larger ones, offer loan repayment assistance as a benefit. And since the pandemic, the profit has improved even further. Under the CARES law passed in 2020, employers can make up to $ 5,250 in student loan repayments for an employee in one year. This money is tax free for the employee and a payroll tax exclusion for the company. The program has been extended until the end of 2025.

Even the smallest employers are finding ways to help employees pay off their loans, including making a fixed debt contribution or even allowing workers to convert their paid time off into money for their student loan repayment.

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Change your payment method

If you’re paying $ 500 a month for your loan balance, keep doing it – just change the way you pay it. By paying every two weeks instead of once a month, you will make 26 payments each year, or the equivalent of 13 months of payments instead of 12. You will save interest and reduce the term of the loan without noticeable increase of the amount from your pocket.

Investigate the civil service loan forgiveness

Borrowers who work for a federal, state, local, or tribal government, or for a qualified non-profit organization, and who have a loan guaranteed by the federal government, may be eligible for the Civil Service Loan Forgiveness program. The loan balance could be laid off after you make 120 monthly payments while working for a qualified employer. To date, the program and its offshoots have wiped $ 583 million in federal student loans from the books, the federal Department of Education reported.

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Review loan consolidation

Whether loan consolidation is right for you depends on your personal situation, but it has some advantages. According to Federal Student Loan, a division of the US Department of Education, the bright spots include the ability to transfer loans from a variable interest rate to a fixed interest rate.

“Paying off your student loans can be a daunting task for many university graduates. The debt burden can make it seem like it’s impossible to be successful in the future, ”said Max Kimmel, owner of One-off funding. “However, there are steps you can take to successfully repay your loans and keep moving forward in life.

“My favorite advice is to consolidate multiple federal loans into one payment with a Federal Direct Consolidation Loan. This will make the monthly payment less individualized and easier to manage, which can reduce your total interest by up to 0.25%.

Read more: How much debt Americans have at each age

Think about refinancing

By refinancing your student loans and taking out a new loan from a private lender, you can save money by lowering your interest rate or choosing a repayment plan that will eliminate debt faster. The downside is that once the loan becomes private, you lose the ability to take advantage of federal assistance, such as the civil service loan forgiveness program. Most lenders require borrowers to have a credit score of at least 650 and a stable job.

Any of these scenarios could help existing loan holders escape student loan debt, but it’s not easy. And what would be their advice to those who are just starting their way to college? Make sure that the degree you are pursuing will yield a return on your investment, and don’t borrow a dime more than you need to.

“When it comes to ROI, there are no hard and fast rules, but common sense should apply,” said Paul Oppong, management consultant. “A good rule of thumb is not to spend more on education than you expect to earn after graduation. If you spend $ 100,000 on a four-year degree but only earn $ 30,000 upon graduation, the investment doesn’t make sense. Spending $ 50,000 in college and earning $ 60,000 after graduation, on the other hand, can make sense. “

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Last updated: September 15, 2021

This article originally appeared on GOBankingRates.com: How to tackle student loan debt

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