A few years ago, several programs were put into place that can have significant impacts on how you repay your student loans. These programs have been tweaked since their inception, but they remain excellent money saving tools that are capable of forgiving tens of thousands of dollars in borrowed money.
The first type of program is what is know as income driven repayment (IDR). There are actually three different approaches one can take with IDR. In each case though, the amount a borrower repays each month is tied to their discretionary income as opposed to a fixed amount. A borrower is generally asked to pay between 10% and 20% of their discretionary income each month. However, where the biggest savings come into play is in forgiveness. Depending on the specific program, any borrowed amount not repaid after 20 or 25 years is forgiven. So, for example, if you borrowed $100,000 for school and are in the “Pay As You Earn” plan and diligently make your monthly payments for 20 years totally $60,000 in repaid principle, the remaining $40,000 unpaid balance after the 20 year mark goes poof. You’re free from the debt.
The other program is called Public Service Loan Forgiveness (PSLF). Borrowers under this plan are also under income driven repayment plans. This big difference here is that remaining loan balances are forgiven after only 10 years rather than 20 or 25. The catch is that borrowers must work in public service in some capacity. However, the federal government’s definition of public service is generous and includes federal, state, or local governments and non-profit organizations, especially 501(c)(3)’s. Keep in mind, there are many organizations that operate under a 501(c)(3) that are not what you might think of when you think of a traditional charity. For example, a museum or hospital may qualify. Anyway, PSLF once again means that a worker with student loans can have thousands of dollars in borrowed money wiped off the book after a number of years no matter their present income, degree, or borrowed amount.
These programs require some leg work on the borrower’s part. You must elect into them and enrollment is not automatic. Of course the requirements and repayment schedules are a bit more complicated than what I’ve outlined here. You can learn more at www.studentaid.ed.gov. What is certain though, is that these programs do exist. That could mean that the student loans so many college students and their families see as death sentences might not be so. With a little a bit of research and hoop jumping, high school graduates can borrow for college and rest easy knowing there are avenues they can travel down that lead to easier repayments.
