Mississippi Money: Student Loans
By Ryder Taff
Every summer a new class of students looks forward to college in the fall. Every summer another set of graduates tries to avoid looking at their slowly growing student loan balance. As a college education has become more and more important as a first step in our economy, the cost of that first step has ballooned. Summer and weekend jobs used to be able to cover the couple hundred dollars tuition. Now, an internship that pays only in experience can’t make a dent in the tens of thousands of dollars needed for tuition, books, and housing.
As the price of college has increased, so has the stress of paying for it. A common theme in the news is a looming crisis due to student loans, though nobody is really sure how that will play out. In this note, I intend to provide some guidance for you, as an individual dealing with student loans of your own (or those of your children).
The first thing to do with your student loans is to know your loan! The loans with the best features are Federal loans. There are also private loans. Each may have different interest rates and different repayment terms. Call your servicer and find out what you have, and how you need to approach each loan. I’ll stick with Federal loans for this note.
Next up you need to know your repayment options. By default, you may be on a standard 10- year repayment. If your loan is small, and your income high, this shouldn’t be a problem. If the opposite is true, you may need to look at income-based repayments of some kind. While they have a variety of names, these plans limit your monthly payment to 10-15% of your gross income, above a certain threshold. That means that if you don’t have income, you don’t owe anything! These plans also have a cap on the maximum payment, which is generally equal to your payments under a 10-year repayment. Most issues with payments being too high can be alleviated with income-based repayment.
Ask for forgiveness. If your job is at a qualifying non-profit or government sector job, you may be eligible for having your loan balance forgiven after 10 years. If you are in most income-based repayment plans, you are eligible for forgiveness after 20-25 years. Keep in mind that forgiveness is a taxable event, but the taxes are still more affordable than the loan balance itself. Forgiveness programs can be quite particular about the details so talk with your servicer annually to ensure that you are doing everything that you need to stay compliant.
Everybody will have a different combination of loans, income and financial situation. If you are overwhelmed with your debt balance, speak with a professional about your personal situation. There are tools for managing your debt load and getting out from burdensome payments, and there is a plan that will work for you. While our economy will inevitably be impacted by the burden and stress of this generation’s student debt, your own personal economics do not have to be.