Pretty much everybody has to deal with college loans at some point in their life. These loans are not easy to pay off and have only grown in size over the years. The cost of college is not coming down any time soon, so how do people continue to pay them off?
Tom and Brendan discuss getting out of student loan debt in this week’s Mullooly Asset Management podcast.
In today’s world, people are graduating from college buried in debt and struggling to find work. Many recent college graduates work at jobs that do not require degrees. Situations like these make getting out of student loan debt pretty tough. There is a little secret offered through the Department of Education you should be aware of though. If you qualify for this program it could potentially save you tons of money. Tom and Brendan explain the program in this podcast.
The Department of Education created an Income Based Loan Repayment Program in 2007 under the Bush administration. Specifically the College Cost Reduction and Access Act is what made this program available. Individuals can make monthly payments that are capped at a percentage of their discretionary income. This means things like rent, car loans, and insurance are not included in the total. The borrower’s payments are not based on
the principal borrowed or the interest rate. Apparently, not a lot of people know about this program though. Only 2.3 million out of 38 million people with student loan debt have applied for it.
Tom and Brendan then go over the old Income Based Repayment program under Bush and the newer version under Obama. Under President Bush the program offered a 25 year repayment period. The payments were capped at 15% of the individual’s discretionary income. Under President Obama the program offers a 20 year repayment period. It lowered the monthly payments to 10% of the individual’s discretionary income. The best part of the old and new Income Based Repayment program is that once the repayment period ends, the remaining loan balance is discharged. Tom explains that it does not matter how much is left on the loan. This is a real solution for getting out of student loan debt.
Tom lays out the conditions for application to this program. If your monthly payment under a standard repayment plan is more than what you would pay under the program, then you are eligible to enroll. Only some kinds of loans qualify for the program as well. These loans are Stafford loans, graduate student PLUS loans, and certain consolidated loans. If you need help getting out of student loan debt and you qualify for this program, you should certainly speak to your Investment Advisor about applying today.