Twenty million students attend college each year, 60 percent of whom borrow money for tuition and other educational expenses. Currently, there is over $1 trillion in student loan debt in the United States. The loss of jobs and struggling economy has made paying this debt difficult for many college grads, leading many to default on their student loans. Unfortunately, defaulting on a student loan can cause all sorts of problems including ruined credit, inability to get a job and the loss of your professional license. Here are some tips to tackling your student loan debt, no matter what financial or career stage you are in.
1) Make a Budget
If you’re struggling to pay your student loan debt, you need to know where your money is going and prioritize your expenses. Don’t guess at your income and expenses. Read your bank statements and expense receipts for accurate numbers. When you know where your money is coming from and going to, find areas where you can cut spending. It might mean making difficult choices, such as eliminating cable or dining out, but it will ultimately make you more financially stable.
2) Negotiate a New Repayment Option
Student loans have several payment options. If you can show you’re having difficulty making payments, you might be able to change the terms of your repayment. For example, if you can’t find a well-paying job, you can ask for an income-contingent payment plan, which adjusts your monthly payment based on your income. If you’ve been ill, suffered a financial hardship, are deployed in the military or are in a medical internship, you can ask for forbearance, which can reduce or suspend payments for a period of time. Other payment options include extended repayment, which extends the loan period beyond 10 years, and graduated repayment, in which payments start low and increase every two years.
3) Take Student Loan Tax Deductions
Like most tax deductions, there are rules and restrictions regarding student loan deductions. In general, interest payments and some loan origination fees are tax deductible. To be eligible, you need to have paid interest on the loan during the tax year, you can’t have a status of "married" but file separately, you can’t be claimed as a dependent, your AGI must be less than $75,000 if you’re single and $155,000 if you’re married, and the money had to have been used for higher education expenses. Consult a tax expert for more information on taking student loan tax deductions.
4) Participate in Loan Forgiveness
Many federal student loan programs allow grads to eliminate their debt through service, including community service, military, teaching, law or medicine in underserved areas. In many cases, you’ll need to have made loan payments and in other cases, you’ll need to show you’re working in an area that offers loan forgiveness.
5) Make More Money
If you’re unable to find a job that pays enough to cover your expenses, including student loan payments, find ways to earn extra income on the side. You can get a second job, although the internet has made it easy to generate extra money from home on your own time. Some quick and easy options include selling items on eBay, doing microwork, freelancing your skills, and working in customer service.
6) File for Bankruptcy
Bankruptcy is a last resort because it ruins your credit and it’s very difficult to discharge student loan debt. But if you’re experiencing catastrophic financial problems that you can prove, bankruptcy is an option. Courts will look at your situation and if you’ve made good faith attempts to pay your debt, are living in poverty and your outlook for increasing your income isn’t good, they may grant your student loan discharge through bankruptcy.