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Student Loan Debt Clock Reaches $1 Trillion

Student Loan Debt Clock Reaches $1 Trillion

Mark Kantrowitz

May 08, 2012

How to Cut Student Loan Debt After College

• Get organized. Make a list of all your loans. Use a spreadsheet or FinAid’s Student Loan Checklist. Put a reminder in your calendar two weeks before your first payment is due. You must make a payment even if you don’t receive a statement from the lender.

• Sign up for auto debit, where monthly loan payments are transferred automatically from your checking account. Many education lenders will reduce your interest rate by 0.25% if you do this.

• Take advantage of the student loan interest deduction, which allows you to deduct up to $2,500 in interest on federal and private student loans on your federal income tax return. You can take the deduction even if you don’t itemize.

• If you have extra money, accelerate repayment of the loan with the highest interest rate first. There are no prepayment penalties on student loans, and this can save you money by reducing the interest you pay.

• If you will be working full-time in a public service job, such as police, fire, EMT, military, public school teacher, librarian, city/state/federal government, public defender, prosecutor or for most 501(c)(3) tax exempt charitable organization, look into public service loan forgiveness.

• If you run into financial difficulty, talk to the lenders before you default. You will lose options if you default first. Federal student loans have many options for financial relief, such as temporary suspensions of the obligation to repay the debt (deferments and forbearances) and flexible repayment plans (extended repayment, graduated repayment, income-based repayment).

• Don’t default. The penalties for defaulting are severe. The government can garnish up to 15% of wages and seize federal and state income tax refunds to repay your debt. A quarter (25%) of every payment will be deducted for collection charges, so a loan that normally takes 10 years to repay may take as long as 19 years. Borrowers who have defaulted on federal student loans are not eligible for FHA and VA mortgages, can’t enlist in the military and may find it more difficult to rent an apartment or get a job. The government can also block renewal of professional licenses. The nightmare doesn’t end when you retire – the government can offset up to 15% of Social Security disability and retirement benefits to repay defaulted student loans. It is also almost impossible to discharge student loans in bankruptcy.

Additional tips on repaying student loans may be found in the Quick Reference Guide on Repaying Student Loans.


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