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As of 2023, the federal student loan portfolio held more than 1.6 trillion dollars. The debt is owed by more than 42 million borrowers. Each student holds about $30,000 in debt, on average, with federal and private student loans combined.
Your student loans may feel heavy, but they don’t have to hold you back. Below, we’ll cover tips for reducing student loan debt, including how to make your monthly payments feel more manageable so that you can enjoy exploring the world outside the hallowed halls of education.
While you may have lived off student loans for years, you may not have fully understood them. If that’s the case, you’re not alone. There are many types of student loans — both private and federal. Here’s a basic breakdown:
Everyone is in a different boat when they leave college. Some graduates might spend a year or two making a pittance as they build their careers. Some may be jumping into well-paying jobs. That’s why there’s no payment plan that’s universally the best fit for everyone.
Here’s a look at the federal payment plans that are available, and a simple breakdown of how these payment plans work:
You might also consider exploring student loan forgiveness programs. Student loan forgiveness means that you will no longer have to pay all of or a portion of your loan. You might also hear the term “discharged” or “canceled” but they’re basically the same thing based on different factors.
If your loans are forgiven or canceled, it’s likely due to something you’ve done such as volunteer work or your career path. If your loans are discharged, extenuating circumstances have occurred that are beyond your control to make it unrealistic to pay back the loan such as permanent disability, bankruptcy or death.
Here are the three basic types of student loan forgiveness. If you meet any of the requirements for loan forgiveness programs, you’ll want proof of your eligibility before you apply. It’s important to be aware that forgiven loans may be taxable as income.
If you find it difficult to keep track of your student loans, private student loan debt consolidation may be a good way to make sure you cover your bases and make all your loan payments on time. Refinance and consolidation loans typically come with variable and fixed-rate options. Check out DCU’s student loan consolidation options to understand more about how the process works.
Those with student loans should be aware of the ongoing prevalence of education refinancing scams. Typically, a company or individual tries to convince a borrower that if they pay the company or individual a large, one-time payment, their student debt may be discharged. Scammers may also try to get borrowers to send them their student loan payments rather than sending them to their assigned loan officer.
Companies may claim to be able to negotiate a student loan debt settlement, saying they will represent you in a lawsuit against the student loan company or discharge your student loans through bankruptcy. These companies are not to be believed. Be on the alert whenever a company asks for your social security number, or for a payment to provide quick and easy student debt relief.
Try to avoid these common missteps to ensure your student debt doesn’t get out of hand:
Both deferments and forbearance are only offered when requested. If you are having trouble making payments, don’t wait. Talk to your loan officer and see how they can help.
Many students don’t realize loan interest begins accruing the moment they receive the money. If you’re still at university, consider starting your payments now. If you pay the interest off each month, you’ll be facing a less intimidating amount of debt when you leave college and set up your repayment plans.
Most college students don’t worry about their loans until out of college and reaching the end of the six-month grace period. However, If you’re proactive, staring down reality and wondering how to reduce student loan debt, here are some ideas to make your loan repayment more manageable.
Leaving college means that you’re starting a new life. This new life might call for new habits. Create a budget to find money to put aside to pay off your loans. This budgeting habit can be applied to countless goals once your student loans are paid off. Embracing the budget now, while you’re facing this new beginning, can set you up for a healthier financial future. Here are some steps to take to start living on a budget:
If budgeting starts working for you and you are able to save more money each month, it’s possible that you’ll have enough to start boosting your loan payments. The more you’re able to pay ahead, the less interest you’ll pay in the end. The question is, where should you focus those extra payments?
There are two frames of thought when it comes to reducing debt. The right choice depends on your frame of mind. There’s no right or wrong way.
While the avalanche method technically saves borrowers more money, many people swear by the snowball method as it keeps them engaged in paying off their debts, rewarding them with small triumphs.
Always be on the lookout for ways to boost your payments. Bonuses, tax refunds and windfalls of any sort can be directed to your loan repayment. Many people also work side hustles — from dog sitting to online tutoring in the evenings — to set aside extra money for payments. Speaking of work, some employers will help pay off your student loans. Consider bringing this to the table during job negotiations or pursuing work that offers student loan help in their benefits package.
Extra payments can be made on a bi-weekly basis or by making one single additional payment when able. However, you should be certain to instruct your student loan servicer that this extra payment is to be applied to the principal. Otherwise, an extra payment may be interpreted as an early payment and the next month’s due date will simply be pushed out. Early payments won’t cut down on the interest you’ll have to pay on your loan.
If you paid student loan interest, you could be eligible for a tax deduction up to $2,500. Here are the requirements you must meet to be eligible.
People with student loans will usually benefit most from a standard tax deduction. However, if you’ve experienced a large life event such as buying a house or becoming a parent, it might be better to itemize your deductions.
When aiming for any financial goal, it’s easy to get bumped off track when you hit financial hurdles. Maybe you go wild during the holiday season and forget about your savings goals. Maybe your car breaks down and your budget gets a little tighter for a few months. Whatever the hurdle might be, beating yourself up for not working toward your goal won’t do any good. Take a deep breath. This is a process. You’ve got this. Here are a few ways to maintain momentum in your student loan debt reduction journey.
We hope that these tips for reducing student loan debt will help guide relief. DCU has offered financial education and guidance to its members since our inception in 1979. We offer tools and services to keep our members on track as well as guidance for those that need help.
Are you interested in banking with an institution with your best interests in mind? Find out if DCU membership is right for you. [1]
Please note, membership is required to open a DCU student loan. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.