Working With Student Loan Debt
Find the payment schedule that works for you
More than two-thirds of college graduates entering the U.S. work force are tiptoeing across a financial minefield, negotiating with creditors to secure the best rates and repayment schedules for their student loan debt.
It doesn't have to be scary, though. The federal government has recently introduced a number of repayment options that, when coupled with existing payment relief plans, can significantly ease a recent graduate's financial burden.
Deferment and Forbearance
For graduates facing economic hardship, deferment and forbearance can seem attractive. Both allow debtors to stop making payments for a specific period of time, and deferment puts a temporary stop on the accruing interest. Unfortunately, qualifying for deferment or forbearance can be extremely difficult — especially for someone who is employed full time — because lenders are unlikely to grant these options to anyone already bringing in a steady paycheck.
Income-Based Repayment (IBR)
IBR is a new repayment option that uses "payment caps" to limit the amount that low-earning graduates are expected to pay on their debt. For qualifying borrowers, IBR caps the amount of gross income they are expected to pay at 10 percent each year. And, if they have any debt left after 25 years, it will be forgiven by the federal government.
Public Service Loan Forgiveness
Another recent debt relief programs is Public Service Loan Forgiveness, which forgives the debt of borrowers who agree to work in certain public service careers. A number of jobs qualify for this, and additional employers are being added to the government's list of recognized job sites on a frequent basis. To receive the full benefits, though, recent graduates must work in a qualifying public service job for 10 years — during which time they must continue making loan payments. At the end of that period, the government will relieve borrowers of any remaining federal student debt.
Finally, for recent graduates who aren't eligible for any of the above options, loan consolidation can be an easy way to lower monthly payments — possibly by hundreds or thousands of dollars each year. Borrowers with multiple loans can consolidate them with one single lender, oftentimes securing a reduced interest rate during the process. Although fewer debt consolidation programs are available today than in the past, a number of organizations (including the U.S. Department of Education) are still offering the service to debtors with good credit and a solid repayment history.
Stephanie Miles is a freelance writer living in New York City.