bSMART Guide

Are you struggling to pay the monthly minimums on your student loans?  The Consumer Financial Protection Bureau estimates federal student loan debt is approximately $1 trillion and total outstanding student loan debt is $1.2 trillion. This means that you are not alone.  If you are wondering how to pay off your college debt, read on for several ways to get out from underneath the avalanche of student loan debt!

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Know Your Options

The first step to paying off your college debt is to know your loan repayment options.  Visit StudentLoans.gov to review federal repayment options for Direct Loans and Federal Family Education Loans (FFEL).   Sign in here to estimate your federal student loan payment under each payment plan option.  

bSmart tip: Consider the annual rate of inflation (3.0% in 2011 and 1.2% in 2013) when determining whether to pre-pay your loans or make the minimum payment with interest. Make sure your pre-payment is penalty free.

Lower your Monthly Payment

If you are struggling to pay off your federal student loans, consider the Pay As You Earn Repayment Plan, Income-Sensitive Repayment Plan, or the Income-Based Repayment Plan (IBR)These options allow you to eliminate, delay, or reduce payments to a manageable monthly amount.  If you don't qualify for these options and you've exhausted all of your deferment options, contact your lender to request a reduced monthly payment.  Most lenders will consider a customized payment plan that allows you to pay the balance of the loan in small amounts over an extended period of time.

bSmart tip: Like any loan, you are paying the principal loan amount in addition to interest.  Know how much of your monthly payment is being applied to interest versus your principal loan amount.

Beware of Increased Interest Payments

Enrolling in the IBR program could result in thousands of dollars of unnecessary interest, so try to pay the loans through the government's other available repayment options  such as the Standard Repayment Plan, Graduated Repayment Plan, and Extended Repayment Plan to save money on interest payments.  However, if your income will not substantially increase over the next 25 years and the other options are not viable, then IBR might be the right choice for you as the debt is forgiven after 25 years of enrollment.

Work for the Government

The Public Service Loan Forgiveness (PSLF) program allows public servants to qualify for loan forgiveness on the balance of their loan after 120 qualifying payments on federal Direct Loans.  Qualifying employment includes federal, state, or local government agency jobs as well as working for not-for-profit classified as a 501(c)(3) tax exempt organization.  If you are considering working for the government, in education, or for a non-profit organization, investigate whether your loan could be forgiven.

Below are the criteria for the Direct Loan Forgiveness Program:

  • You must make 120 on-time, full, scheduled, monthly payments on your Direct Loans. Only payments made after October 1, 2007 qualify.
  • You must make those payments under a qualifying repayment plan.
  • When you make each of those payments, you must be working full-time at a qualifying public service organization. 

Shop Smart and Reduce Debt

Use the SmarterBucks' Marketplace to shop at hundreds of retailers including J. Crew, Banana Republic, Target, Groupon, HP, and Staples to earn rewards that pay down your student loans. (The full list of brands is listed here.)  Earn up to 10% in rewards and save $1 for every $1 SmarterBucks you contribute to your loan.  Family and friends can join SmarterBucks and earn rewards on your behalf when they shop or participate in brand-sponsored surveys.

Signing up for SmarterBucks is free.  It might seem like the amounts contributed to your loan balance are small, but they could make a significant difference over time.  Want to track your savings through SmarterBucks?  Login at any time to your SmarterBucks account to see how much money you have made in extra loan payments and saved on interest!

Student Loan Repayment Bonus

Consider asking your employer to give you a student loan repayment bonus.  An employer might be willing to pay a one-time lump sum payment against your loan instead a traditional bonus saving you future interest payments.  You might have to remain in the position for a set number of years at a fixed salary in exchange for the student loan repayment, but the bonus is a form of income that might be more valuable to you if your interest rate is higher than the rate of inflation (1.2% in 2013). 

bSmart tip: You will still have to pay income tax on any bonus that is applied directly to your student loan obligation.  Consider the tax implications when proposing this option to your employer.

Consolidate

Consolidating your federal loans can simplify your monthly payments and extend your re-payment period, but you could lose some benefits on your individual loans and pay more interest by extending your payments.  The interest rate is a fixed rate calculated using the weighted average of the interest rates on your consolidated loans and rounded to the nearest 1/8 of 1%.  To learn about the requirements for consolidation and to calculate your monthly loan payment visit Studentaid.ed.gov to find out if loan consolidation is right for you.

 

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