As part of the 2020 CARES Act, millions of people who borrowed money to attend college had their loan payments deferred. Payments did not have to be made on student loans, and interest did not accrue. However, payments will restart after January 31, 2022.
If you are thinking about going to a post-secondary school, good for you! College opens up a whole new set of career possibilities for people of any age. If you haven’t accrued student loan debt, consider some of the options that will keep your college costs down.
Take dual credit classes in high school. These count for high school graduation requirements but offer credit at the community college at a reduced rate. Advanced Placement classes also qualify for college credit if you earn a certain score on the final exam. Many high school seniors graduate with a full year of college credit already earned!
Earn a two-year degree at a local community college like WNCC. The credits easily transfer to a four-year private or public college or university, and it’s much less expensive. Attend a career-specific trade school which will prepare you and help place you in a specific job. Remember that public (state) colleges are less expensive than universities, and both are less expensive than private colleges.
Fill out that FAFSA form (last week’s article). Any grants or scholarships you receive do not have to be paid back. If you qualify for work study, that helps pay the bills, and the college is subsidized by the government for your wages. You can also take a part-time or summer job with a private employer. Working means you have to borrow less to pay for tuition, books, and lodging.
Student loan debt is the second highest consumer debt category, after mortgages. The Federal Reserve estimates that Americans owe $1.73 trillion in student loans. 43.2 million student borrowers are in debt by an average of $39,351 each.
A trend that concerns many economists is the number of older adults who have not yet paid off their college loans. About 8.5 million Americans age 50 or older carry $349 billion in student loan debt. Thousands are continuing to make these loan payments after they have retired!
If you can’t afford to make payments, you may qualify for deferment. There are two types of deferments: economic hardship and unemployment deferment. You must be out of work to qualify for the unemployment deferment, but you may qualify for economic hardship if you receive federal or state public assistance, you’re a Peace Corps volunteer, you work full-time but earn less than or equal to the federal minimum wage, or you have income that’s less than or equal to 150% of the poverty line for your family size and state (about $26,000 a year for a two-person household).
If your budget can’t handle payments on your federal student loans but you don’t qualify for a deferment, you may be able to enroll in an income-driven repayment (IDR) plan. There are several IDR plans available through the Department of Education, but all base your monthly payments on your earnings. If you’re already enrolled in an income-driven plan and your income has declined a lot, you can also ask your loan servicer to recertify your income and recalculate the payment.
You can apply for an IDR plan on the federal student aid website www.studentaid.gov, search for IDR Plan, and select the plan you qualify for with the lowest monthly payment. You may pay more in interest because you’re extending the repayment period, but after 20 years of payments, you may be eligible to have the balance forgiven.
Another option is to refinance your loans with a private lender, especially if you have several loans you want to consolidate. Interest rates have been very low. But there are some things to consider. Some plans offer low interest rates in the first year and hike them later. To avoid interest rate hikes down the road, look for a low fixed rate rather than a variable rate. And consolidating federal student loans with a private lender makes them ineligible for federal loan forgiveness and IDR programs.
Next week’s article will look at the federal loan forgiveness programs offered by the US Department of Education.