Q: I’m a gay man in my mid-20’s just finishing graduate school. I have some fairly significant student loans, which I will need to begin to payoff shortly. Do you know what my options are if I can’t afford to make the standard payments right away?
A: You are certainly not alone with your student loan debt burden, as the statistics below will confirm. Here’s what you need to know about repayment options if things get a little tight.
Bearing the Burden of Student Loan Debt
If you are weighed down by student loan debt, you are not alone. Recent data shows that there are 44.5 million student loan borrowers in the U.S., and they owe a collective $1.5 trillion. What’s more, 45% of recent graduates have student loan debt and a whopping 62.5% of Americans with some form of student loans outstanding are age 30 or older. The average college graduate with a bachelor’s degree left school with $28,446 in student debt in 2016.1 To put this in perspective, the average starting annual salary for new graduates in 2018 was $50,390.2
Paying off these loans is often a challenge. Beyond the burden of monthly payments, the high level of debt can derail long- and short-term financial goals. One study showed that only 39% of recent graduates with student debt believe they’ll be able to pay it off in 10 years. The researchers also estimated that a graduate of the class of 2018 will have to wait until age 36 before being able to purchase a first home with a 20% down payment and won’t be able to retire until age 72.1
Strategies to Start the Repayment Process
Although the amount of your student debt may seem overwhelming, repayments don’t have to be. Long-held budgeting strategies such as managing everyday expenses and limiting purchases by credit card can be effective ways of finding the cash to put toward student loan payments. Additionally, borrowers have other options depending upon the type of loan they hold.
Graduates who took out federal loans — which represent the bulk of total student debt –have different options and protections at their disposal. Among these are the following:
• Standard repayment. Loans are repaid in equal amounts over a stated period, generally 10 years. This is typically the default plan if another option is not selected.
• Extended repayment. Under this plan, repayments can be extended up to 25 years. Monthly payments are generally lower than with the standard plan, but total payments are significantly higher due to the extended time period.
• Graduated repayments start out lower than under the standard option and increase gradually so that the loan can be paid off in 10 years.
• Income-driven repayment is available to borrowers who can demonstrate a partial financial hardship. Typically, repayments are capped at 10-20% of income and repayments can extend up to 25 years.
• Income-sensitive repayment also requires a partial financial hardship, and repayment amounts are a function of your annual income and other factors.
What if You Default?
There can be serious consequences should a borrower decide to not repay, or to stop repaying, a student loan. Defaulting on a student loan can result in low credit scores that can affect the ability to obtain a future loan or employment. Moreover, student loan debt might not be forgiven in bankruptcy proceedings under current bankruptcy law.
Borrowers who have difficulty repaying a loan may look into some of the hardship-based repayment programs described above. Additionally, the Public Service Loan Forgiveness Program might apply to individuals who work in nonprofit organizations or certain fields, including public education and law enforcement.
If you are facing a mountain of student debt, consider your options and contact your lender, who may be willing to renegotiate the terms.
1Source: Nerdwallet, 2018 Student Loan Debt Statistics, December 4, 2018.
2Source: Korn Ferry, High Demand, Low Reward: Salaries for 2018 College Graduates Flat, Korn Ferry Analysis Shows, May 14, 2018.
Jeremy R. Gussick is a CERTIFIED FINANCIAL PLANNER™ professional affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBT community and was recently named a 2018 FIVE STAR Wealth Manager as mentioned in Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including DVLF (Delaware Valley Legacy Fund) and the Independence Business Alliance (IBA), the Philadelphia Region’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected].
Jeremy R. Gussick is a Registered Representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
This article was prepared with the assistance of DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This communication is not intended to be tax advice and should not be treated as such. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Because of the possibility of human or mechanical error by DST Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems Inc. be liable for any indirect, special or consequential damages in connection with subscribers’ or others’ use of the content.
© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved.
*As reported by Financial Planning magazine, June 1996-2018, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2018 Five Star Wealth Manager.