Douglas Olsen
Paying off student loans can be a daunting task, especially when the amount owed is $80,000. However, it is important to remember that you are not alone in this situation, as 5 million borrowers in the US carry similar or higher debt. The good news is that there are several strategies and repayment options available to help you manage and eventually pay off your student loan debt. The best approach will depend on factors such as your career path, income, financial situation, and goals. In this discussion, we will explore various practical steps and considerations to help you tackle your $80,000 student loan debt and provide you with a sense of control over your financial future.
| Characteristics | Values |
|---|---|
| Average student loan debt owed per borrower | $28,950 |
| Average national student loan debt | $41,000 |
| Federal loan repayment options | Income-driven plans, loan forgiveness |
| Private loan rates | Variable, based on credit score |
| Refinancing | Lower interest rates, better loan terms |
| Repayment strategies | Tax refunds, side hustles, stimulus checks, bonuses, wedding gifts |
| Repayment plan options | Standard repayment plan, extended repayment plan, graduated repayment plan, income-driven repayment plan |
| Loan forgiveness eligibility | Teachers, public servants, members of the United States Armed Forces |
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What You'll Learn
Refinancing for lower rates
If you have private student loans, refinancing can be a smart way to simplify your debt and secure better loan terms that could help you pay off your debt faster. When you refinance, you replace one or more existing student loans with a new loan, ideally at a lower interest rate.
Refinancing can be worthwhile if you qualify for a lower rate or need to reduce your monthly payments. A lower interest rate or extended loan term could significantly cut your monthly costs or the total interest paid over time. For example, if market rates have dropped since you initially borrowed, you might qualify for a lower rate, potentially saving thousands of dollars in interest.
However, if you have federal student loans, refinancing comes with downsides. Refinancing federal loans means giving up federal protections and benefits, including flexible federal repayment and forgiveness options.
To qualify for student loan refinancing, lenders typically require a credit score of around 670 or higher, a steady and verifiable income, and a low debt-to-income ratio. Applying with a creditworthy cosigner may result in a better chance of loan approval and/or a lower interest rate.
Fixed rates for refinancing start as low as 3.18% APR, with variable rates as low as 4.39% APR.
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Explore repayment and forgiveness options
If you're paying off $80,000 in student loans, you're not alone. According to the US Department of Education, 5 million borrowers carry $80,000 or more in student loan debt. The best repayment strategy depends on your career path, income, goals, and financial situation. Here are some options to explore:
Repayment options
Federal loans offer a variety of repayment plans. The 10-year repayment term is generally the quickest and cheapest route to debt elimination. However, if the payments under the standard plan are too high, you can opt for an extended, graduated, or income-driven repayment (IDR) plan. IDR plans base your monthly payment on your income and family size. The new Saving on a Valuable Education (SAVE) IDR plan, for example, sets payments based on discretionary income, and the government removes monthly interest your payment doesn't cover. You can also switch between federal loan plans to align with your financial situation.
Forgiveness options
There are several ways the government can help with student loan forgiveness:
- Public Service Loan Forgiveness (PSLF): If you work full time for a government or not-for-profit organization, you may qualify for forgiveness of your Direct Loans.
- Teacher Loan Forgiveness: You may be eligible for forgiveness of up to $17,500 if you teach full time for five consecutive academic years in certain low-income schools or educational service agencies.
- Total and Permanent Disability (TPD) Discharge: If you have a disability that severely limits your ability to work now and in the future, you may qualify for a TPD discharge and won't have to repay your federal student loans.
- AmeriCorps Education Award: After completing a term of national service in an approved AmeriCorps program, you are eligible to receive an education award that can be used to repay qualified student loans.
- Closed School Discharge: If your school closes while you're enrolled or soon after you withdraw, you may be eligible for a discharge of your federal student loan if you meet certain requirements.
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Budgeting and side hustles
Budgeting
Budgeting is a crucial step in managing your finances and paying off debt. Start by reviewing your loan breakdown, including the interest rates and repayment terms for each loan group. This information will help you create a realistic budget that allocates your income across expenses and debt repayment.
Consider using budgeting tools or apps to track your spending and identify areas where you can cut back. Remember that while extending the repayment term can lower your monthly payments, it may result in paying more interest over time.
Side Hustles
Side hustles can provide extra income to accelerate debt repayment. Here are some ideas to consider:
- Freelancing: This could include writing, editing, graphic design, or web development, or social media consulting. Utilize your existing skills and networks to find freelance opportunities.
- Delivery services: Driving for apps like Uber or Doordash can provide a flexible side income, but consider the additional costs, such as gas and vehicle maintenance.
- Online teaching or blogging: Teaching online courses or starting a blog can offer multiple revenue streams. However, these options may require more time and upfront investment.
- Reselling items: Flipping items bought from thrift stores or reselling collectibles can be lucrative if you have the knowledge and connections.
When choosing a side hustle, ensure it aligns with your interests, expertise, and lifestyle to stay motivated. Set specific and time-bound financial goals to help you stay focused and track your progress. Remember that side hustles may impact your taxes, so be sure to consider the potential implications.
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Income-driven repayment plans
Income-driven repayment (IDR) plans are a good option for those who want to make their payments more manageable. IDR plans set payments based on discretionary income, and the government removes monthly interest that your payment doesn't cover. The new Saving on a Valuable Education (SAVE) IDR plan is one such example.
The SAVE plan is a good option for those with a high income potential. With a 5-8% yearly raise, you will hit the limit of all other income repayment plans (except the SAVE plan). Additionally, the SAVE plan has interest covenants, so your loan doesn't grow past the initial loan. However, borrowers in the SAVE plan will see their loan balances grow when interest starts accruing. When the SAVE Plan forbearance ends, borrowers will be responsible for making monthly payments that include any accrued interest as well as their principal amounts.
The U.S. Department of Education encourages borrowers with loans in the SAVE Plan to use the Loan Simulator to estimate monthly payments under available repayment plans, determine repayment eligibility, and learn which option best meets their repayment goals.
If you are a borrower with private student loans for school, refinancing can secure better loan terms that could help you pay off the debt faster. For example, one person refinanced their loan from 6.5% to 2.5% when interest rates were at their lowest.
It is important to note that you don't have to stay married to one federal loan plan forever; instead, you can update the plan periodically to align your payment with your financial situation.
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Loan forgiveness eligibility
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) is a program that forgives the remaining loan balance for people working for a nonprofit or government agency. To be eligible, you must make 120 qualifying repayments. Getting on an IDR plan while pursuing PSLF is recommended to get the most out of this program.
Teacher Loan Forgiveness
The Teacher Loan Forgiveness program is for teachers who work for five consecutive academic years at a low-income school. The government can forgive up to $17,500 in loans under this program.
IDR Plan Forgiveness
All borrowers can qualify for IDR plan forgiveness after paying for 20 to 25 years. The SAVE plan is a more recent option that forgives loans after 10 years if the borrower took out less than $12,000 in loans.
Total and Permanent Disability Discharge
If you have a total and permanent disability, your loans may be discharged.
School Closure and Fraud Discharge
If your school closes while you are enrolled or if the school commits fraud, you may be eligible for loan discharge.
National Health Service Corps Loan Repayment Program
Qualifying medical professionals working in underserved areas may be eligible for the National Health Service Corps Loan Repayment Program.
It is important to note that refinancing federal loans with a private lender will make you ineligible for federal loan forgiveness programs.
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Frequently asked questions
Owing $80,000 in student loans is more than triple the average student loan debt, but it is not uncommon, especially for graduate students or borrowers who attended higher-cost institutions. Here are some general tips to help you pay off your student loans:
- Create a budget and a payoff plan.
- Explore repayment and forgiveness options.
- Consider consolidating or refinancing your loans.
- Dedicate your tax refund to paying off your student loan debt.
- Increase your income.
- Avoid other large financial obligations until you've made progress toward paying off your student loan debt.
Federal loans typically offer fixed interest rates, income-driven repayment plans, and potential loan forgiveness. The standard repayment timeline for federal student loans is 10 years, but you could lengthen that time if you choose an income-driven or extended repayment plan.
Private student loans often come with fewer borrower protections and higher interest rates. Refinancing is available for private loans and could lower your interest rates when you have more income or a better credit history. If you have payment trouble, contact your lender immediately. In some cases, you can negotiate payment arrangements or settlements.
Consider using a student loan calculator to understand what your monthly student loan payments will look like and how your loans will amortize over time. Additionally, if you have federal student loans, research whether your employer offers repayment assistance.
