3 Ways to Lessen the Burden of Student Debt

Source: Kalyan Chakravarthy

As President Obama recently remarked, student loan debt in America has gotten much worse in recent years. In fact, the level of student debt in our country has quadrupled since 2003, and continues to grow at an alarming pace.

However, if you are one of the millions with high student loan debt (like me!), there are a few programs you can take advantage of in order to lessen the burden, or in some cases eliminate the debt altogether.

1. Income-based repayment and Pay as You Earn
These two programs are designed to lessen the student loan burden for those individuals who have a high level of student loan debt relative to their income.

Under Income-Based Repayment, or IBR, the borrower's monthly payment is capped at 15% of his/her discretionary income, and will never increase to more than the standard repayment amount. If there is any remaining balance after 25 years under the IBR plan, the remaining balance is forgiven. The forgiven portion is unfortunately taxed as income, but it is still better than having the debt.

Pay as You Earn is a newer program with even better terms than IBR. However, in order to qualify for Pay as You Earn, the borrower's first loan must have been taken out after October 2007.

Under this program, monthly payments are capped at just 10% of discretionary income and remaining balances are forgiven after just 20 years. There are other benefits to the program as well, such as limitations on how much interest will accrue while paying a loan under this plan.


2. Did you ever consider teaching?
There is a special program to encourage college graduates to teach in high-need areas and low-income secondary and elementary schools. There are two levels of forgiveness benefits:

1.) If the borrower served for five consecutive years in an eligible elementary or secondary school as a highly qualified teacher in any subject area, then he/she can receive $5,000 in loan forgiveness.

2.) If the borrower serves for five consecutive years as a highly qualified mathematics or science teacher in a secondary school, or as a highly qualified special education teacher in a qualified school, he/she can receive $17,500 in loan forgiveness.

The U.S. Department of Education maintains a list of schools that qualify, and the application process is actually pretty easy. 

3. For all of the public servants out there
There is a program known as Public Service Loan Forgiveness that was started in 2007. Basically, the program says if a borrower works in a qualified public service job for 10 years (they don't have to be consecutive) while making loan payments; the remaining loan balance will be forgiven at the end of the 10 years. 

In order to qualify, the borrower must keep certified records of his/her employment and submit them to the Department of Education. Qualified employers include (but are not limited to) emergency management, military service, law enforcement, public health services, public education, and various other non-profit organizations. 

For a specific list of qualifications and procedures to follow, check out the DOE's information site.

Make your move
While student loans can be very burdensome, they are also a very positive program, allowing many young people to go to college who wouldn't be able to otherwise.

As long as college tuition continues to increase at astronomical rates as it has over the past couple of decades, student loan debt will increase accordingly as more money is required in order to be able to afford the costs. 

In the meantime, however, there are ways to get some relief, and the Pay as You Earn program in particular is a great way for recent college grads with lots of debt to reduce their burden while trying to get careers started.

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  • Report this Comment On February 09, 2014, at 2:28 PM, Howdie wrote:

    There is no such thing a "debt forgiveness".

    There is only SOMEONE ELSE PAYS.

    That means that US TAXPAYERS foots the bill.

    So, go ahead, major in art history; then work at Starbucks pouring coffee for 20 years. You'll have about $100/month in disposable income so you'll only pay $10/month on your loans. Then in 20 years, the working people next door will bail you out.

  • Report this Comment On February 09, 2014, at 2:31 PM, mattsmithsd wrote:

    Are these programs only for subsidized/non subsidized loans or also for private student loans?

  • Report this Comment On February 09, 2014, at 5:37 PM, Dan31 wrote:

    mattsmithsd- These programs are only for federal student loans. Private loans do not qualify.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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