Reducing Your Student Loans

Posted by Tracy Kerscher | September 28th, 2009 | Advice for Students, Help & Tips

The rising cost of education, coupled with slow economies in many countries, has made it harder than ever to pay back student loans. For this reason, people have turned to creative ways to reduce their amount of debt and make some headway in paying off those outstanding balances. Two ways to go about this process and eventually rid yourself of college debt are to participate in a student loan forgiveness program, or to refinance the existing debt at a lower rate of interest.

Student loan forgiveness programs have been around for some time, but have generated more interest in recent years. Some of the programs are government-sponsored and are designed to retire education loans issued by the government. Others are structured as private forgiveness plans and apply to a limited number of situations and student loan programs.

In order to qualify for any type of forgiveness program, the student must meet specific criteria in relation to his or her inability to repay the current amount due. Factors include the inability to find work in the field related to the degree earned, salary or wages under a specific amount, and other situations that are recognized as constituting hardship. Depending on the circumstances of the student, a forgiveness program may simply do away with all or a portion of the remaining balance on the student loans. This leaves the individual with either a reduced amount to repay, or nothing at all.

While a student loan forgiveness program can relieve a great deal of financial pressure, there are some drawbacks to consider. With some plans, the amount that is forgiven is counted as taxable income for the calendar year to which the forgiveness is extended. Depending on how much student debt is forgiven, it may be enough to move the individual into a higher tax bracket, thus increasing the taxes owed to the federal and state governments. The action is also noted on your credit report, which may result in an inability to obtain the best loan and mortgage rates with some lenders.

Along with forgiveness programs, there is also the possibility of refinancing your student debt. With this solution, you are contracting for a new loan that has a lower rate of interest applied to your outstanding balance. The lower rate means that you will ultimately pay less to retire the debt than you would have otherwise.

Two things happen when you enter this type of program. First, the refinancing allows you to restructure the amount of your monthly installment payments to a level you can reasonably afford. As a result, you do not get behind on your payments, and your credit report reflects that current status. Second, the lower rate of interest often means that more of each installment goes to retire your core balance. Over the course of a year, you will see a higher retirement of your outstanding debt than if you had trudged along trying to pay off multiple loans.

You can also reduce your student debt on your own, assuming you can secure credit cards with high limits and low interest rates. You simply use the cards to pay off student loans that are at a higher rate of interest, then pay off the card balance. Keep in mind that this means a lot of homework on your part, since you will need to find credit card offers that fit your needs, and evaluate each of these credit card deals. You will need to read credit card reviews carefully, paying special attention to interest rates and other key terms and conditions. Compare credit card ratings first, then submit credit card applications to the providers that seem to meet your needs best. If you follow through properly, you’ll get the best credit cards with the lowest rates of interest and begin reducing your student loan debt quickly.

Tags: student debt reduction, student loans
Filed under: Advice for Students, Help & Tips |

6 Responses to “Reducing Your Student Loans”

1. Credit Cards Says:
   July 9th, 2010 at 5:34 am

   Reducing student loans by which we can save money also we can build the backbone of our nation.

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   June 2nd, 2011 at 12:42 am

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   August 2nd, 2011 at 8:51 pm

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5. Erwin Nietzer Says:
   September 5th, 2011 at 10:15 pm

   I’m a little confused when it comes to loans. I’m reading up all I can but I still feel lost!

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