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According to The Institute for College Access & Success, seven in 10 seniors (68%) who graduated from public and nonprofit colleges in 2015 had student loan debt, with an average of $30,100 per borrower. This represents a 4% increase from the average debt of 2014 graduates. Graduate students, for example, have a median debt of $57,600, and 1 in 4 have debts of $99,614 or higher, according to New America, a public policy think tank.
How do you pay off your loan faster?
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There are several student loan myths you might believe—or not. We are highlighting six of them.
Myth #1. YOU MUST WORK IN PUBLIC SERVICE TO GET STUDENT LOAN FORGIVENESS
Public Service Loan Forgiveness isn’t the only way to get your federal loan debt wiped out. You can also get forgiveness if you sign up for one of the income-driven repayment plans, like Revised Pay As You Earn, which is available to all federal loan borrowers. Income-driven plans cap your monthly payment at a percentage of your income, and increase your loan term from the standard 10 years to 20 or 25 years. They also forgive any remaining loan balance at the end of that term, but you’ll have to pay taxes on the amount that’s forgiven. There is another catch. IDR plans usually give you a lower monthly payment than the standard plan does, so you’ll end up paying more in interest.
Myth #2. YOUR FIRST PRIORTY SHOULD BE TO PAY OFF YOUR STUDENT LOANS
It depends. If you have debt that carries a higher interest rate than your student loans, like credit card debt or a personal loan, you should pay that off first.
Myth #3. CONSOLIDATING YOUR STUDENT LOANS IS ALWAYS A GOOD IDEA
It depends. Nowadays, students usually have all of their federal loans with the same servicer, so consolidation is often no longer necessary. Also, federal student loan consolidation is most useful in qualifying for Public Service Loan Forgiveness or income-driven repayment plans. That’s because Federal Family Education Loans, Stafford loans and PLUS loans need to be consolidated into a federal direct loan to qualify for those programs.
But if you have a Perkins loan and qualify for forgiveness, including it in consolidation would mean giving up forgiveness benefits for that loan. And if you have several different types of federal loans, it’s cheaper to exclude direct loans, since your new loan’s interest rate would be the average rate rounded up to the nearest 0.8%. Plus, your loan term will be extended if you owe more than $7,500, so you’ll end up paying even more over the life of your loan.
Myth #4. YOU’RE STUCK WITH THE INTEREST RATES YOU GOT
If you have student loans with interest rates over 6%, student loan refinancing could lower your interest rates and rein in long-term costs. If you refinance federal loans through a private lender, you’d have to give up federal borrower protections like income-driven repayment and forgiveness.
Myth #5. CRYING POOR WORK WONDERS WITH THE FINANCIAL AID OFFICE
No way! A decision to change an award is limited by a college’s policies and requires consensus of the financial aid committee. There are many requirements for them to meet, with many of them driven by public or school policies. In most cases, don't appeal.
Myth #6. FAFSA IS ONLY FOR FAMILIES EANRING LESS THAN $50,000
Many families believe the Free Application for Federal Student Aid, is only for students from families earning less than about $50,000.
But the FAFSA also qualifies students of all income levels for lots of other financial aid that is awarded no matter how much, or little, the family makes.
a). To qualify for other kinds of scholarships and grants. Some financial aid programs require a FAFSA even though they award aid without regard to family income.
b). To get cheap, forgivable federal loans. The FAFSA automatically qualifies the student for low-interest and forgivable federal student loans–the most attractive kind of student loans available. It also is the first step to qualify a parent for a federal parent PLUS loan, which can be used to help pay college costs.
c). To gain an admissions edge. In some cases, filing a FAFSA can actually help a student gain admission to a college, says Lucie Lapovsky, former president of Mercy College and now an educational consultant. Admissions officers know that students hoping for aid who don’t submit FAFSAs to the college are less likely to enroll, she says. So some schools may not want to waste an admissions letter on a student they think is unlikely to attend.