how do you eliminate the student loan sorceress? there is no magic formula to combat the evil student loan sorceress, one of the Dragon’s most loyal and dangerous minions. hers is a much darker magic than any potion you can concoct. fear not. her weakness is the same as the Dragon’s. for she cannot withstand an all out clubberin’ over a long period of time. while there is no quick fix, here are some thoughts to help you on your quest.
PAY IT OFF AS SOON AS YOU CAN
if you just uttered the word duh, the 1980’s called and wants its slang back. burn. there are folks (some really bright) that suggest to take your time repaying your loan, especially if the interest rate is low. don’t do that. debt is debt. it’s an albatross and the sooner you break free of the chains of oppression, the better. theoretically, you might be able to out earn your student loan interest rate by investing additional funds instead of accelerating student loan repayment. theoretically, i might be able to dunk a basketball. practically, ain’t neither gonna happen. the whole misnomer fails to properly account for risk.
THE RISK
words like oppressive aren’t hyperbole, it’s pretty much the way it is. student loans don’t die on their own. the federal government can garnish your wages (even social security income) or take a tax intercept – sans opportunity to be heard by a court of law. the collection charges will make the loan almost impossible to repay. student loans, but for the rare exception (read: like never) are not dischargable in bankruptcy. defaulting on your student loan is like credit score suicide. the royal family doesn’t worship fico, but this could set you back for a while.
INTEREST REDUCTION
some providers will lower the interest rate (think .25%) if you pay by automatic debit. lenders may also reduce the rate even more (think 1.0%) if you make several (48) monthly payments in a row. Such reductions may not make a huge difference if the balance is low, but it’s definitely worth an inquiry – especially if the balance is large.
NEVER
and the king means never, consolidate a student loan with a spouse’s student loan. your student loan discharges when you die (you will die, hopefully without student loans). let’s say your spouse has $20K in student loans, you consolidate to shave off some interest, and your spouse dies. that extra $20K is all yours now. had you not consolidated it would have been discharged. but for extreme circumstances, don’t forbear the payments. the interest will accrue and capitalize. you will pay interest on the interest during the forbearance period and be straddled with more debt for a potentially longer term.
ne ne ne never cosign. for anything. ever. especially student loans. even for your kids. don’t do it. seriously. don’t. all the aforesaid risk transfers to you when you cosign. bad idea. you’ll end up paying it. the societal pressure to cosign coupled with a desire to help a kid/your kid is powerful. separate emotion from a major (does anyone else salute when someone says major?) financial decision. folks get roped in to parent plus loans for the same reasons. don’t do that either. the KoF has a heart, but you aren’t the one getting the degree – so as a practical matter, parent plus loans are even worse than regular student loans for yourself.
TAXES
tax deduction. you can deduct up to $2,500.00 of your student loan interest on your federal income taxes. you do not need to itemize to do this but have to fill out the 1040 or 1040A form. lots of good people don’t know this.
OTHER WAYS TO PAY
check it out, but upromise sounds tedious. while every little bit helps, don’t forget the time value of money. plus, you’d have to be spending a bunch to save a bunch. reducing expenses altogether is what’s gonna gain you traction (assuming the created margin is applied toward the student loan and not a gnarly stereo – what? the kids aren’t saying gnarly anymore?). some public service gigs will pay the student loan back if you work for 10 years. do the math. don’t get stuck in a job where the difference in what you would make in the private sector is larger than what the student loan balance is. this is definitely worth investigating, especially if you are planning on or are already working in a qualifying position.
BEST PRACTICE
go frippin’ bananas on this thing and stomp a mudhole in it. reduce expenses, increase revenue, and apply the seemingly created income to the loan. as much as you can as fast as you can. most student loan companies calculate interest daily, so it works a little different than if you were paying toward principal on a home mortgage. it matters not. kill it. the sorceress has cast her spell on the entire nation and the amount of student loan debt held by americans has surpassed the amount of credit card debt held by americans. the loan terms are complicated and the longer you play with fire the more likely it is that you’re gonna get bbq’d. the royal family atomic elbowed its way out of $127K of bondage – most of which was the maniacal student loan sorceress.
you can do this. you can do this. you can do this.
seek the advice of a competent professional as all situations are fact dependant. this post is not meant to be considered as legal, accounting, or other financial advice.
