An education is an investment in your future. But what happens if your investment is not paying off quickly enough to keep up with your student loan payments? From claiming student loan interest as a tax deduction to arranging to make smaller payments, to working for an organization that will pay back your loan for you, there are many options for reducing your student loan debt.
Tax Deductions
While deducting the interest from your student loans will not actually reduce what you pay to your lender, it can help indebted graduates with overall cash outflow, as Uncle Sam is willing to take a little less of your income when you file this claim. Keep in mind that you will have to keep your account statement from your lender to determine how much interest you have paid, up to $2500. Also, your modified adjusted gross income (MAGI) must be less than $70,000, or $145,000 if you are filing jointly, for you to qualify for this deduction. See the IRS website for detailed instructions on claim your student loan interest deduction.
Payment Reduction
For graduates paying back Federal education loans, there are six types of repayment plans available. The standard repayment plan will require fixed monthly payments over the ten-year life of the loan. In the long run, this option accrues the least interest.
The other repayment plans include extended repayment, graduated repayment, income-contingent repayment, income-sensitive repayment and income-based repayment, all of which allow for monthly payments to be reduced for either a temporary period of time or over the entire extended life of the loan. The downside to these options, however, is that more interest will ultimately accrue as compared to the standard repayment plan.
If you are looking to reduce the overall cost of your student loans, and not just reduce payments in the short run, you also have the option to prepay any portion of your loan without penalty. This means that if you are paying a fixed amount on your loans monthly, and end up with a bonus to your income one year, you can pay more than the required monthly amount, which will help you pay off your loans in full more quickly, thereby reducing the total amount of interest you will ultimately pay.
Whether you are struggling to meet your monthly payment obligations or looking for ways to reduce your overall debt more quickly, it is important to stay in contact with your lender about your needs. By communicating honestly, most lenders will be able work out a solution that not only fits your financial situation, but also protects your credit in the long run.
Loan Forgiveness
For individuals going into service-related careers, there may be options to have your loans forgiven or paid for by your employer.
Consider pursuing opportunities to volunteer with organizations such as AmeriCorps, Peace Corps or Volunteers in Service to America (VISTA), which all offer partial loan-forgiveness in exchange for your service. Military service, teaching in low-income schools, or, in some states, working in law enforcement can also be paths to full or partial loan forgiveness.
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