Student Debt Secrets: A Chat With a Student Loan Expert

It’s no secret to anyone who doesn’t live under a rock: millennials have racked up a lot of student debt. Here are some tips that can help you out.

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It’s no secret to anyone who doesn’t live under a rock: millennials have racked up a lot of student debt. According to the Huffington Post, student debt rose 84% between 2008 and 2014, and seven out of ten members of the collegiate class of 2014 graduated with debt (and not the same type of debt we’ve already chatted about).

While we don’t have the solution to the problem of the price of a college education — and we can’t eliminate your student debt, we brought in an expert to help you manage it. Drew Cloud, founder of The Student Loan Report, answered some of our questions about student loan debt.

Why have millennials earned so much student loan debt? Is it really all our fault?
In the past decade or so, society has placed an increasing importance on getting a college degree. This has caused many students who would be better off entering a trade or some other job that doesn’t require a four-year degree to shell out big bucks or take on large amounts of debt (usually both) to go to college. Also, students are increasingly majoring in overcrowded and non-rewarding majors that lead to poor job prospects and, therefore, lower salaries — making it much harder to be successful in student loan repayment.

Finally, possibly the greatest reason for the explosion in student debt in the United States is the federal government’s system of giving it out. The government has almost no eligibility requirements, and any student going to an eligible school (most of them) can receive student loans. The government does not look at creditworthiness, high school GPA, intended major, or anything else when giving out student loans. If you go to an eligible school, you can receive a federal student loan with the same interest rate as everyone else.

How did you get started in this field? Why do you want to help millennials in particular?
When struggling with my own student loan debt, I constantly searched for a site that not only gave non-biased advice on how to manage student loan debt but also one that provided coverage of the latest student loan news.

The student loan industry is always changing. Laws are passed, new private companies spring up, etc. When I couldn’t find the site that I thought would help myself, I ventured out to start it to help students and their families everywhere make better decisions when it comes to paying for higher education and managing student loan debt.

What are the best techniques you can offer to help eliminate student loan debt?
The best way to eliminate student loan debt really depends on each individual’s situation.

If you have a well-paying job and a solid credit score, refinancing your student loans is one of the best things you can do. If you are eligible to refinance, you will typically receive a lower interest rate, saving you thousands over the life of your loan(s). You can choose to shorten your repayment term to expedite repayment or extend your term to lower your monthly payments. You can also consolidate multiple student loans (both private and federal) into one loan when refinancing.

It should be noted, however, that when you refinance your federal student loans with a private lender (the only option there is) you will lose certain benefits such as access to income-driven repayment plans, forbearance and deferment protections, and student loan forgiveness. Those who are eligible for refinancing, though, will likely never use any of these benefits.

Speaking of income-driven repayment plans, this is one of the best options for those struggling with repayment. These plans limit your monthly payments to 10% to 20% of your discretionary income – making them much more affordable. If you do not have a job, or have a very low-paying job, you may be able to pay $0 per month. These plans also offer student loan forgiveness after 20 to 25 years.

Like refinancing, there is a downside. When you make smaller monthly payments, you will pay down less of your principal balance and more interest will accrue each month. This means you will end up paying much more over the life of the loan unless you receive forgiveness at some point, which I wouldn’t recommend depending on. You should see income-driven repayment plans as a way to lower your payments until you can get back on your feet and start paying down yo

Aside from refinancing and enrolling in income-driven repayment plans, my other suggestion is to try to reorganize your budget to free up some money to put towards your debt. Also, if you happen to find yourself with some extra cash (whether you get a bonus at work, sell some stuff, or win the lottery ((!!!!!)), you should consider putting it towards your debt. This will lower your principal and less interest will accrue.

How have you helped millennials tackle their student loan debt (i.e. success stories)?
Though I haven’t been able to work directly with millennials as much as I’d like, I do like to think that my website has helped lots of students and families make better decisions regarding their student loans.

I have consulted many of my friends and have helped them get back on track with their repayment if they were struggling, and helped those doing well financially figure out the best way to attack their debt while still doing other important things like investing.

Do paying off student loans after college help or hinder your credit score?
Honestly, it is really hard to tell. It all depends on the individual’s situation. If you make every payment on time and pay off your debt, there is a chance you will see your credit score drop. The reason for this is that one of your accounts will close, thereby lowering your credit mix which determines 10% of your credit score.

If you are successful in repayment, though, that will always be reflected in your credit history, and lenders will see that positive repayment history. If you consistently miss payments or default on your student loans, you can definitely expect to see your credit score drop.

Should you start paying off loans while still in college? Or are you better off waiting until you’re finished?
If you can afford to put money towards your student loans in college, this is one of the best things you can do to save money in the long run. As mentioned previously, as you make extra payments towards your student loans, your principal decreases and each subsequent interest charge will be less. Making payments in college is especially important for those with unsubsidized federal student loans as these accumulate interest while you are still in school.

If you don’t finish paying while you’re in college… will we have to keep paying these off into our ‘30s?
This also is highly dependent on the individual. Those who are able to secure well-paying jobs could realistically pay off their loans in just a few years. Those with less income, on the other hand, may be paying of their student loans well into their ’40s (scary stuff!).

Can you recommend any online resources for millennials paying off student loans – blogs, Twitter accounts, or apps?
Here are some of my favorite resources for student loans:

Are there any government assistance programs to help millennials pay off student loans?
As mentioned previously, there are options for borrowers struggling to make payments such as income-driven repayment plans and student loan forgiveness. You can learn more about these here.

What about Uncle Sam? What are the tax implications of paying off student loans?
There are a few things to consider with taxes when paying off student loans. First there are two tax credits for higher education expenses — the American Opportunity Credit and the Lifetime Learning Credit. These allow you to write off expenses for tuition, books, supplies, etc. You can also deduct student loan interest payments from your taxes. To learn more about all of these tax write-offs, check out this page.

 


Drew Cloud is a journalist who typically writes about student loans, personal finance and education. He always had a knack for reporting throughout high school and college where he picked up his topics of choice. Since his graduation from college, Drew wanted to funnel his creative energy into an independent, authoritative news outlet covering an exclusive and developing industry. Thus, the Student Loan Report was born. You can reach out to him at drew@studentloans.net.

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