Retiring student loan debt is very important

While higher education has become a lightning rod for discussion about the return on investment for training, one thing nearly everyone agrees on is that the cost of education is problematic. In particular, student loans have emerged as one of the great financial burdens of our times.

Consider these statistics:

Outstanding student loan debt in America is now at $1.3 trillion – a 300 percent increase from eight years ago.

$35,000 was the average college debt owed by the class of 2015.

As many as one in three Americans with active student loans are at least one month behind on payments.

Ironically, if you currently hold student loans, these kinds of statistics don’t even matter. What matters to you is what’s going on in your own household. In that case, you’d need to know these facts:

Defaulted student loans can prevent you from receiving certain types of Federal assistance, including FHA mortgages.

Co-signers – usually a parent or grandparent – are as liable for the debt as the student is, and will suffer the same consequences if the loans aren’t paid in a timely way.

Loans taken out on behalf of the student – usually by parents or grandparents – must be paid back even if the student doesn’t complete a degree or, worse, even in the case of the student’s death.

Defaulted student loan balances can be deducted from the borrower’s Social Security benefits or taken from tax refunds.

Student loans, whether Federal or private, are almost never discharged in bankruptcy.

If you’re not convinced already, let me say it plainly: Despite what you might hear about “good” debt and “bad” debt, student loans are actually pretty toxic. Even the outrageously bad mortgages of the last decade allowed the borrower the possibility of escape through foreclosure, short sale or bankruptcy. In the case of student loans, all of the

protections are tilted in favor of the lender, with almost no mechanism for offering the borrower a fresh start, under any circumstances.

Well, OK then. When faced with an intractable situation, I vote for ending the relationship. In the case of student loans, that means retiring the debt so you can move forward with the rest of your goals. I can recommend at least 10 different ways to do that, including the following.

1. Just pay according to the plan. If your debt is relatively low – say $10,000 – set up an auto-withdrawal from your bank account and move onto other problems to solve.

2. Resist the urge to defer. Deferring one’s loans, especially while pursuing another level of education, can seem logical. Unfortunately, not all deferrals are created equal, and in some cases the interest continues to build. I know a woman whose $40,000 in loan debt had almost doubled by the time she started making her payments.

My advice is to resist mightily but if you must defer, at least make random payments marked for principle as often as possible.

3. Achieve loan forgiveness through the Public Service Loan Forgiveness Plan. This program gives credit for work with qualifying government agencies or nonprofits, going back to October 2007. When you’ve accumulated 10 full years (120 months) of working in these organizations while making on-time payments of your loans, the balance of your debt will be forgiven.

4. Increase your payments to principle. This is so simple it’s easy to overlook. Check out these numbers from Finaid. org: A loan of $30,000 at 6.8 percent interest and a monthly payment of $345 over 10 years will accrue $11,429 in interest. That’s more than a third of the original balance!

If you were to add just $25 per month to your payment, you’d save $1,157 in interest and cut almost a year from the payment plan. An extra $50 saves $2,096 and 1.7 years of payments, while $100 more per month chops off almost 3 years and $3,531 in interest.

Try the loan calculator at www.finaid.org to check your own numbers.

I’m out of space, so come back next week and I’ll provide six more options for retiring your student loan debt. In the meantime, you’ll need to gather this information if you’re serious about this project: How much do you owe and at what interest rate? What are your total monthly payments – and how much of that is principle? If you follow the current repayment schedules, when will your debts be paid – and how much will you have paid in total?