The Senate on
Thursday failed to pass 2 separate bills that would have lowered the interest
rate on subsidized federal Stafford student loans will it set to double on today
July 1 to 6.8%. The change will
affect 7 million undergraduates who are issued loan after July 1, 2013. You will not be charged interest on your loans while you are enrolled in
school at least half-time, during grace periods and deferment. Interest rates for existing loans will not be
affected. However, Congress is supposedly working come to an agreement that
will be retroactive to July 1, 2013.
Total student
loan debt has reached $1 trillion. According to the
Pew Research Center, households with a net worth of less than $8,500 owe 58% of
the total student loan debt. The cost of college tuition increases faster than the rate of
inflation. According to CNN the majority of 2013 college graduates’ debt from
federal student loans and they owe an average of $26,000, an average of $19,000
in private loans, $18,000 in state loans, $13,000 in personal and family loans
and $3,000 in credit card debt.
When Democrats
controlled Congress in 2007, they passed a law as part of their economic
stimulus efforts to gradually lower the 6.8% fixed interest rate and then
slowly let it rebound over a four-year period.
On March 29, 2010, President Obama signed a bill to
assist student loan legislation that goes into effect in 2014. One goal of the bill was to produce the most
college graduates by 2020. The bill includes
but it not limited to: ending subsidies to private banks that will no longer be
allowed to make student loans with federal money, setting a fixed interest rate
of 3.4% on subsidized federal student loans and capping a college graduates annual
student-loan repayments at 10% of their income.
If you apply for $50,000 in student loans
with a 3.4% interest rate, with the new 6.8% rate you will owe a total of
$91,600.68, an increase of $22,620.86 over the life of the loan. Your new monthly
payment will increase by $94.25.
|
Loan Balance:
|
$50,000.00
|
|
Adjusted Loan Balance:
|
$50,000.00
|
|
Loan Interest Rate:
|
3.40%
|
|
Loan Fees:
|
0.00%
|
|
Loan Term:
|
20 years
|
|
Minimum Payment:
|
$50.00
|
|
Enrollment Status:
|
In Repayment
|
|
Monthly Loan Payment:
|
$287.42
|
|
Number of Payments:
|
240
|
|
Cumulative Payments:
|
$68,979.82
|
|
Total Interest Paid:
|
$18,979.82
|
|
Loan Balance:
|
$50,000.00
|
|
Adjusted Loan Balance:
|
$50,000.00
|
|
Loan Interest Rate:
|
6.80%
|
|
Loan Fees:
|
0.00%
|
|
Loan Term:
|
20 years
|
|
Minimum Payment:
|
$50.00
|
|
Enrollment Status:
|
In Repayment
|
|
Monthly Loan Payment:
|
$381.67
|
|
Number of Payments:
|
240
|
|
Cumulative Payments:
|
$91,600.68
|
|
Total Interest Paid:
|
$41,600.68
|
Source: Finaid.org
Since the interest rate is based on economic need increasing the interest
rate would be an oxymoron ensuring that the college students who need the
student loans the most would be helped the least in repayment of their student
loans.
A better solution would be to keep the interest rate at 3.4% permanently
instead of having to revisit the issue every year. This will ensure the
interest rate remains fixed for the life of the loan. This would also prevent
stress and anxiety for college students regarding their student loan debt and
allow them to focus on their education. Here are 17 ways to off student loans.
- Military Cap. If you are in the military and are on active duty there are limits on student loan interest rate accrual.
- Loan Cancelation. If the school you attended closed, went bankrupt or you withdrew from school you may be eligible for a partial refund by completing an unpaid refund or discharge application form.
- Determine how much you can afford. This may require that you create a budget and reduce some expenses to ensure you make the loan payments each month. Reduce spending by 30-50%.
- Avoid consolidation. Don't consolidate federal loans into private loans because you will no longer be eligible for deferment, cancellation, forbearance or income-based payment plans. You can consolidate federal loans into the Direct Loans government consolidation program; however you can only consolidate a Direct Loan once.
- Loan Forgiveness. When looking for a job ask about student loan forgiveness programs. You may be eligible for a student loan forgiveness program that pays 25% or more of your student loan each year. For more information visit www.finaid.com.
- Extra income. Work a full-time and a part-time job or 2 full-time jobs to pay down student loans. The highest interest is accrued during the first one to five years of the loan so the more interest you pay on the loan during that time the faster your balance will go down and the less money you will owe over the life of the loan.
- Stay home. Live at home after graduation for at least 2 years to save money and put most of your earnings toward your student loans.
- Don't buy a car. Catch public transportation. If you absolutely need a car because there is no public transportation near your job or home then buy a cheap used car that is in good condition or use a car sharing service such as Zipcar.
- Ask for assistance. Ask for a financial hardship or economic deferment if you have federal loans.
- Windfall. Use a bonus, commission, tax refund, inheritance, settlement or other large sum of money to pay towards your student loans.
- Use programs. Use programs to help pay off your student loans such as Campusslice.com, Givecollege.com, Pave.com, Tuition.io or Upstart.com.
- Ask politicians. Contact your local state senator or congressman who works on the education committee and set up an appointment with them to discuss options for paying back your student loan. Some possible solutions are: late fees will be waived, extending the payment plan, reducing the balance, etc.
- Pay more. Pay more than the minimum monthly payment.
- Pay online. Pay online which may reduce your interest rate.
- Use discounts. Apply for discounts and credits such as linking your Upromise account to your Sallie Mae account which pays down loans quicker by applying a portion of your savings to your Sallie Mae account or get an interest rate reduction for setting up automatic payments.
- Sell Stuff. Have a yard sale or sell items on eBay or Craigslist to get extra money and use to pay towards your student loans.
- Get a roommate. Rent out a room in your house, condo or apartment, or sleep on your sofa and rent out your room to get extra income to pay down student loan debt.
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