Heavy student loan debt makes headlines, but has not resulted in significant policy changes over the last few years. In the meantime balances continue to grow and students struggle with the best strategies to repay the ever-growing debt. Total student loan debt sits at 1.48 trillion dollars with the average 2017 graduate carrying $39,400 in balances at the time of graduation. An increase of six percent over 2016 graduates. While the average payment of $351, is less than the average car payment, the higher debt amounts can keep student loans on the balance sheet for over two decades. The traditional repayment of loans is only ten years. Yet more and more students find they must extend payments through the new extended repayment plans, allowing payments to last as long as 25 years.
There are strategies you can employ that will reduce debt balances faster, paying off loans sooner, without requiring larger monthly payments.
Choose to Work in Public Service the First Decade of Your Career
One of the most popular routes to loan forgiveness of Federal student loans is through public service employment, which will lead to loan dismissal after ten years of work. If you carry high loan balances, it might be a small sacrifice to make at the beginning of your career.
There are a limited number of jobs that count, and you must file for employment certification to qualify for forgiveness. You can certify each year, with each employer, or at the end of ten years. Many find it easiest to certify employment each year. Doing so will identify any issues early in the process. Other requirements include enrollment in an income-based repayment plan and full-time employment during the ten-year period, which does not need to be consecutive.
Qualifying jobs include public service, non-profits and the military. You can also work in education with the federal or state government or a qualified 503 (C) agencies for employment credit. Working as a contractor for a qualifying agency is not considered public service employment under current rules.
Join the Military
The military has one of the most generous loan repayment programs, called the Military College Loan Repayment Program or CLRP. It consists of a series of payments towards student loans, rather than requiring monthly payments, and relying on loan forgiveness after a set period. You must enlist with existing student loans and file the proper paperwork each year. The student loan program also offers waivers, which allow for a single annual payment in place of monthly payments. Using the waiver can eliminate the need to make ongoing payments during military service.
The Army, Navy, and Air Force will repay up to $65,000, with the National Guard repays a maximum of $50,000. You are required to pay taxes on the payment as income each year. You can combine the CLRP with the Public Service Loan Forgiveness, for any remaining balance if you stay in the military for at least ten years.
Look for an Employer with Student Loan Repayment Benefits
More employers, looking to attract recent graduates, are offering student loan repayment as part of the benefits package. Essentially the way it works is your employer will pay a certain percentage of your pay up to a maximum dollar amount for each year of employment. While the benefit will not replace your monthly payment, it can speed the payoff.
You are not required to be in a certain repayment plan to qualify, and many employers will pay both private and federal loans associated with the cost of higher education. Congress currently has a bill in the works that would make such payments tax free to employees – up to a certain limit – which could increase the number of employers offering the benefit.
Identify Special Loan Forgiveness Programs in Your Profession
Many states and organizations have programs for in-demand fields like nursing and teaching, to attract talent. These programs are separate from Federal student loan forgiveness options.
For example, nurses certified to work in Florida could receive loan forgiveness of up to $4,000 annually for a maximum of $16,000 over four years if they work in areas with nursing shortages. Those willing to work in a critical shortage facility can have up to 60% of their loans repaid within two years.
Similar to nursing, teachers can choose from multiple programs, if you teach in areas of critical need. Teaching in subjects such as math, science, and special education qualify, along with employment in schools located in low-income districts. There are two federal programs, in addition to the public service loan forgiveness, and several state programs which can whittle down loan balances faster. In some cases, you could qualify for multiple programs to expedite the loan payoff.
Take Advantage of Tax Breaks
You can use tax breaks to pay down student loans even before repayment begins. Unless you qualify for subsidized loans, the interest on the balance borrowed accumulates while you are in school. To get the balances down before graduation, re-direct tax credits for college expenses toward applicable loan balances. Most students qualify for the American Opportunity Tax Credit which will directly reduce the amount of taxes owed.
After you begin repayment, you can also deduct up to $2,500 in paid student loan interest from taxable income. There is an income limit of $80,000 for those filing as single and up to $160,000 for couples filing a joint return. Both Federal and qualified private student loans meet the requirements for the deduction.
With 70% of college graduates carrying student loans, finding faster and more efficient ways to eliminate student loan debt can free up money for other financial needs. Whether you want to beef up your retirement accounts or pay off credit card debt, the lack of a student loan payments can add up to thousands of extra dollars to your bottom line.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.