How to Eliminate Student Loan Debt Now

Like millions of people in their 20s, 30s, 40s and beyond, many take out student loans for a shot at a better quality of life and the chance to improve their career options. The price tag for a good college education has been sky-rocketing, with the typical student graduating with nearly $20,000 in student loan debt. According to the College Board, the cost of attending a public, four year college or university in the 2006-2007 school year, including tuition, fees, room and board, was $12,796, up 35 percent over the past five years. For private schools, the cost was a hefty $30,367. It is paramount that one does not drown in student loan debt, therefore, solid money management skills are needed, as well as a working knowledge of how these loans work, the realization that interest rates are somewhat negotiable and a familiarity with available government assistance programs.

Instructions

Difficulty: Challenging

Things You’ll Need:

• student loan information, PIN from Department of Education, social security number, school information

Foolproof Plan to Get Rid of Student Loan Debt

1. To retire the student loans quickly, you must get a handle on the types of loans that you have. Start by logging on to the National Student Loan Data System, www.nslds.ed.gov. There is a ton of information there, including all federal loans a student owes, the dates various loans were received, how much interest and principal are outstanding and the status of the loans i.e. if they are in deferment, default or repayment. You must first obtain a four digit PIN from the Department of Education before you can access this information. For those with private loans, call or write the lender directly.
   
   Many borrowers do not know the difference between a federal loan and a private loan. Private loans are generally more expensive because they have variable interest rates. One must ascertain if the loan is tied to LIBOR (the London Interbank Offered Rate), increases with the federal funds rate or something else. Federal loans have government-imposed caps on their interest rates, which are fixed, currently at 6.5 percent for Stafford loans. Stafford loans are subsidized, which means while you are in school the government will pay the interest. Private loans have no subsidies.
2. Negotiate your rate. Every July 1, Congress adjusts the rate caps charged on federal student loans. Lenders then set their own rates based on what the market will bear. Negotiate rates for:
   
   Having payments automatically deducted from your checking or savings account;
   Making a set number of on-time payments (24 to 48 months of on-time payments usually qualifies you for a rate cut and a few lenders will give you a break sooner).
   Earning good grades or qualifying for any other incentives a lender offers;
3. To eliminate student loan debt as fast as possible, try to figure out how much you will pay in interest over 10, 20 or 30 years, which may be a little tricky. Check out the free online college calculators provided by FinAid at www.finaid.org/calculators. These calculators can help you figure out how much money you will pay in principal and interest for various federal loans, using different loan repayment plans, such as standard loan repayment plan, extended repayment option, graduated repayment program or income contingent repayment plan.
   
   The longer the payments are stretched out, the more interest you will pay, so be wary. Pay off the debt quickly using the standard repayment plan, which will allow you to pay it off in a decade or so.
4. Consolidate carefully. Private loans and federal loans must be kept separate. They cannot be consolidated. In most cases, you do not want to combine a Perkins loan with another type of loan because you lose benefits such as loan forgiveness if you go into teaching.
5. Turn to Uncle Sam for help. The Office of Personnel Management runs the Federal Student Loan Repayment Program. If you work for any federal program, or even if you are unemployed and looking for a job or willing to switch jobs, you should seriously investigate this program. It allows any federal organization that you work for to pay off your student loans on your behalf—to the tune of $10,000 a year, up to a maximum of $60,000. In exchange for paying off your loans, you must work for the federal agency for a set period of time, usually three years.

Tips & Warnings

• Avoid default at all costs, if you are in trouble, call your lender.
• Make extra payments on top of the normal monthly payments.