Student loan debt now exceeds $ 1.7 trillion. When we received the following letter from a borrower deep in her student loan debt, we wanted finance professionals to help – since the debt settlement strategies for them are similar to those many borrowers consider considering their loans from a possible loan waiver, up to and including smart budgeting, for refinancing (check out the lowest fixed refinancing rates for student loans that you can qualify for). Here is their question and what finance professionals think they and you should be doing to reduce student loan debt.
Ask: I’m 39 now and in a better place in my life than I was about 10 years ago when I decided to take out over $ 100,000 in student loans to attend a master’s program in food policy and nutrition. The program was the only Masters program I got into, and I didn’t care what it cost – I didn’t even look at what I was signing.
In total, I owe a total of $ 131,000 between my undergraduate and graduate loans. Some of the loans are state and others are private; one of these companies charges an interest rate of 6%. Although most of my loans are now on hold (thanks to the federal government), I am worried about what will happen if that stops. The loan payments are too expensive, even though I’m now a contracted nutrition and health consultant with a good salary – $ 110,000 a year.
But our mortgage is $ 1,100 a month; Daycare is roughly the same and car payments are $ 400. Otherwise, in my opinion, we live very frugally: We even bathe our son in a Tupperware tub because our bathroom needs to be renovated, but we don’t have the money! We can’t even afford to contribute to retirement or pay for much-needed dental work. I honestly don’t know what we’ll do if my credit thaws. How do I get out of debt faster? – Erina
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Answer: First, you’re not the only one feeling overwhelmed by student loan debt, and you’re doing some things right, such as “mortgage and car loan caps,” both of which “are well within your reach for your income level.” says Mitchell C. Hockenbury, a certified financial planner with 1440 Financial Partners in Kansas City. But, says Hockenbury, with your low mortgage and other seemingly sensible expenses, you should see if you have more cash to pay off debt. Even if they don’t, by the time you finish daycare you will have the cash to pay off your debts more aggressively.
The next question is whether to refinance loans to save money. But first, keep in mind that your federal loan payments are currently on hold until May 2022 and that you should be careful about refinancing a federal loan into a personal loan as you will lose some of the federal loan guarantees, such as B. Income-based repayment and award options. (Here’s how much you could save by refinancing). But Ethan Miller, the founder of Washington, DC-based financial planning firm Planning for Progress, says Erin should probably refinance some of her personal loans as interest rates are pretty low right now (see Lowest Student Loan Fixed Refinance Rates You Can Qualify for ). Here). “If you are confident of your income and you know you will be working for many years, this is your best option,” Miller says.
There are other options, says Hockenbury: “Is there a way to get a cash-out refi? Interest rates are low and property prices have skyrocketed. Maybe she could use the money to pay off debts, ”he says. But of course she has to be sure that she can pay it back, otherwise she risks losing her house.
While student loan waivers may be an option for some borrowers, since she is a contractor with a government agency, rather than a full-time employee, Erin does not sound like qualifying for a loan allocation program like the Public Student Loan Forgiveness Program. explains Müller. (See loan grant, cancellation, and waiver details here to see if your eligible.) But if she looks at her budget, she may find extra cash to pay off her debt faster; Refinancing at least some of their loans at today’s low interest rates could make payments more manageable, and a refi payout on their home could be another option. Good luck Erin!
* Questions edited for brevity and clarity.