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281 MG Tips to Tackle Student Loans and Get Out of Debt

5 ways to pay less and stay on top of student loan debt.

Broadcast on:
29 Aug 2012
Audio Format:
other

5 ways to pay less and stay on top of student loan debt.

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There are a couple announcements before we get started. If we haven't connected on social media yet, be sure to find me on Facebook, Twitter, and Google+. When you're on Facebook, just do a search for Money Girl. And on Twitter, my username is @LaraAdams, L-A-U-R-A-A-A-D-A-M-S with No Space. If you forget, all my contact information is on the Money Girl page at quickanddirtytips.com. Today's show was inspired by a reader named Breanne who asks, "My husband has $83,000 in federal student loan debt. He's on the income contingent repayment plan because his income as a part-time teacher isn't enough to make full loan payments right now. He hopes to get a full-time position and qualify for the Loan Forgiveness program, but if he doesn't, how can we ever get out of debt?" Today's graduates are saddled with huge amounts of student loan debt while having to endure a tough job market. Student loan debt now tops a trillion dollars in the United States, which is more than our credit card debt. Though there's no one formula to get rid of student loan debt, I'll give you five tips to manage it wisely. Tip number one, never miss payments. Many people don't realize that student loans are a different breed of debt because they're like a cockroach built to survive. You typically can't shake a student loan even by declaring bankruptcy. The government and private lenders can sue you at any time to collect defaulted student loans, plus charge you collection fees, court costs, and attorney fees. The IRS can intercept your state and federal income tax refund, garnish a portion of your wages, and even withhold a limited amount of certain benefit payments until your student loans are paid in full. Additionally, having a student loan in default can make you ineligible for certain professional licenses or for getting student aid in the future. It also makes you ineligible for certain programs that offer debt relief, which we'll cover next. And of course, late payments are one of the most damaging items to have on your credit file. So for all these very serious reasons, be sure that you always make paying a student loan your top financial priority. Tip number two, know your repayment options. If you're having trouble making student loan payments, be sure you understand all your options as soon as possible. Federal loans generally offer much more repayment flexibility than private loans, but don't assume anything, get on the phone, and speak to a loan representative before you're at risk for missing a payment. Standard repayment for federal student loans is a fixed payment for 10 years, but different loans come with different repayment plans. Here are six loan relief options you may qualify for. Number one, extended repayment. This plan extends the standard loan term from 10 to 25 years. You can pay a fixed amount each month or opt for graduated payments that start low and increase every two years. Number two is graduated repayment. This maintains the original 10-year repayment term, but payments start low and increase every two years. The third option is income contingent repayment. This adjusts monthly payments each year based on income, family size, and total amount of debt for up to a 25-year repayment term. The fourth option is income-based repayment. This adjusts monthly payments based on a period when you experience a financial hardship. If you meet certain requirements, the loan may be extended beyond 10 years or even canceled. The fifth option is called forbearance. This gives you temporary relief. If you experience an illness, financial hardship, military mobilization, or start a medical internship or residency, for instance, you might have reduced payments or no payments for several months. You must be current on your loan to be eligible for forbearance. And the sixth option is called deferment. This postpones payment of a loan if you're current on payments but are unemployed, have a financial hardship, go back to school, are on active military duty, or become disabled. You're never locked into one option because you can change your student loan repayment plan by contacting your loan servicer. Since Brienne's husband is on the income contingent plan, that's the third option I mentioned, one recommendation is to investigate the income-based repayment plan, which is the fourth option, and find out if it would offer more relief. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science, and social studies. IXL has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. 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So how do you compete without cost spiraling out of control? It's time to upgrade to the next generation of the cloud. Oracle Cloud Infrastructure, or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has four to eight times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing, and of course nobody does data better than Oracle. So now you can train your AI models at twice the speed and less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced, oracle.com/advanced. Do you ever watch TV and think, "Wow, I'm really good at this?" You're right. With rewards on Sling, watching 30 minutes of TV daily gives you chances to win up to $10,000 in cash and other monthly prizes. Sign up for Sling, or stream for free with Sling Free Stream to get rewarded for watching TV. Sling lets you do that. Visit Sling.com to learn more and get started. No purchase necessary for it, we're prohibited by law. Visit Sling.com for more details. Tip number three, consider loan forgiveness programs. Many federal student loans allow you to provide services in exchange for having debt reduced or canceled altogether. To qualify, you typically have to do volunteer work, military service, teach school, or practice law or medicine in underserved communities for a certain period of time. For instance, Peace Corps volunteers can have certain types of federal loans deferred or canceled up to 70% in total. As Breanne mentioned, becoming a full-time teacher can make you eligible for student loan forgiveness. For instance, if you teach in an elementary or secondary school that serves low-income or disabled students, the U.S. Department of Education maintains a database called the Teacher Cancellation Low Income Directory, which is a list of schools where teachers qualify for loan cancellation. The American Federation of Teachers at AFT.org also maintains a funding database which lists loan forgiveness programs for teachers. As usual, I'll include links to these resources in the transcript for this show on the Money Girl page at quickanddirtytips.com. Just look for episode number 281, called Tips to Tackle Student Loans and Get Out of Debt. To find programs that you may qualify for, do an online search using the keywords "student loan forgiveness." You should never pass up a good job opportunity to commit to a loan forgiveness program, but it may be a smart option depending on your situation and field of expertise. Tip number 4, sign up for automated payments. You can enroll in the Electronic Debit Account Program or EDA program that authorizes your bank to automatically make your student loan payments. This is a great way to ensure that your payments are sent on time, plus you also get a .25% reduction in your interest rate. Tip number 5, get a second job. If you bring in additional income, you can use it to increase your monthly student loan payment, pay down your balance faster, and pay less total interest. Having advanced education should give you an edge for finding a second job or getting work that pays above average wages. A final quick and dirty tip for borrowers with multiple federal student loans is to consider doing a loan consolidation, which combines several loans into one. Consolidation makes repayment more convenient and generally extends the repayment period, which reduces the monthly payments. Speak to your loan servicer and visit loanconsolidation.ed.gov. They have a calculator called the Federal Direct Consolidation Loan Calculator that can help you crunch the numbers for your situation. Always remember that when you take advantage of repayment options that extend the length of a loan or reduce payments, you get short-term relief, but generally end up paying much more in interest over the long run. So try to increase your income and cut expenses so you can avoid paying more for your student loan than you absolutely have to. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. MUSIC Do you ever watch TV and think, "Wow, I'm really good at this"? You're right. With rewards on Sling, watching 30 minutes of TV daily gives you chances to win up to $10,000 in cash and other monthly prizes. Sign up for Sling, or stream for free with Sling Free Stream to get rewarded for watching TV. Sling lets you do that. Visit Sling.com to learn more and get started. 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