A recent bill was proposed by Elizabeth Warren and Suze Orman attempting to tackle the issue of student debt. The bill would allow roughly 25 million Americans with an average of $30,000 in student loan debt to refinance their loans at today’s lower interest rates. Interest rates have been at historic lows since 2007 with the 30 year fixed mortgage rate currently floating around 4.3%. And what is the rate that students pay on their loans? Current interest rates for federal Stafford loans can be up to 8% and private loans up to 14%! The government and private institutions have made fortunes from the absurd interest rates they charge students. The government alone made $66 billion from 2007-2012 on student loan interest. What alternative do students have? Decide not to go to college? Good luck finding a job.
College tuition costs have risen 80% since 2003. To put that in perspective, housing has increased 23%, food and beverages 31%, and general inflation 27%. Student loan debt has now amassed to an incredible $1.2 trillion which is over 7% of the U.S. GDP! And unlike many types of debt, student loan debt cannot be discharged through bankruptcy. That’s right, the loan you took out to buy a fancy car can go away, but the loan you used to get a college degree will never be discharged.
Student loan debt can have serious repercussions on millennials. We will postpone buying new homes, cars and other major purchases that drive economic growth. However, there are some steps you can start taking now to manage and possibly eliminate your student debt.
- Create a customized payment schedule. Many loan servicers will automatically enroll you in a standard payment plan, most likely having payments start right after graduation. However, you can work with your loan servicer to create a customized payment schedule that better fits your situation. Whether that is initially lower payments, extending your payment schedule or having income-dependent payments, you can customize your plan to meet your specific needs. But beware, the longer the payment schedule, the more interest you pay.
- Loan forgiveness programs. Many may not know this, but there are several programs you can participate in that will forgive your entire student loan balance. For example, there are student loan forgiveness programs for public service workers, health care professionals and military members that forgive your student debt if you meet its requirements. Some are national programs and some are state programs, but it is certainly worth looking into.
- Weekly/Biweekly payments. Most student loan payments are monthly. However, similar to how taxes are automatically taken out of your paychecks, you can make consistent student loan payments from each paycheck you receive. Not only will this decrease the amount of total interest you pay, but you will get accustomed to your net take-home pay and make you a more disciplined consumer.
- Tax deduction. You can deduct up to $2,500 per year of student loan payments on your tax return. These “above the line” deductions may seem small, but hey, take the small victories when you can.
Student debt can be managed. Tuition costs have already started to grow at slower rates and I cannot see student loan rates remaining this high in the future. However, for the 25 million millennials stuck paying off student debt at these high rates, you can take steps to manage your debt and prevent it from taking over your life.
Sources:
Elizabeth Warren Suze Orman 2016 Student Debt
Just How Fast College Tuition Has Grown
