Right now there are several myths about paying down your student loan fast. Recently an article was published about a young graduate from Harvard Business School, Joe Mihalic, who payed off his $90,000 in student loan debt in the relatively short time of 7 months. Of course, many people were immediately interested to hear how he did it: After all, we've got more than 37 million people in the United States who are currently buried under an average undergraduate student loan debt of $25,000, and for those who are struggling with graduate school debt that number jumps up to more than $40,000. Not exactly the ideal situation when one is just beginning a new life, when one is just starting to earn money.
Joe however is an exception to the rule that ‘slow and steady wins the race.' Joe won a six-figure job at a technology company after graduation, which is something quite above the norm these days even as the unemployment rate seems to be recovering down to 7.3 percent in October from 10.3 percent last January. In a time when many graduates find themselves obliged to move back in with their parents to save on living expenses, Joe's stellar job, while attainable for some, is not the average graduate's situation.
Paying down or paying off student loan debt earlier or faster than planned can work for some, depending on their income level, marital status, number of dependents, etc. In addition to the relatively small percentage of stories like Joe's, there are some myths about paying down your student loan fast out there which bear review, especially for students and recent graduates.
Myth #1: Tax Breaks
While there are some tax breaks out there for those struggling with student loan debt, those breaks only affect $2,500 of the interest on the loan each year. This amount gets smaller the more money you make, phasing down for single borrowers after earned income reaches $65,000 per year.
Myth #2: Live High
Starting out your career with an average of $25,000 in student loan debt is a wake-up call to those in debt who love to spend, spend spend. This is NOT the time to live the high life, as doing so will just about ensure your failure to make your monthly payments, much less pay off the loan in its entirety.
Save, Save, Save! Here are some tips:
This is not the time to snowball your debt by taking on more debt like a mortgage; living modestly doesn't mean you cannot live well.
Go through your magazine subscriptions, gym memberships, and other services that you may not use
Cut out cable TV
Going out to eat is expensive – give it a rest; home-cooked food is much better anyway!
Myth #3: File for Bankruptcy
Bankruptcy is NOT an option as a student loan problem solution. Even if you find yourself in a position where you must declare bankruptcy, you will still owe money for your student loans. Only those who have been permanently disabled or are deceased will have their student loans discharged.
Myth #4: There's No Way Out
Although bankruptcy isn't an option for those struggling under high student loan debt, there are several programs out there which offer loan forgiveness.
Teacher Forgiveness Program: Teachers who teach for five years at low-income or high-risk schools, and who make their payments during that five year time period, can get up to $17,500 on their loans forgiven. This is a federal program.
Americorps: Americorps has a program which allows you to earn money to put towards your student loan by working for a year at a specific Americorp service. The award amount in 2011 was $5,500, and you will get health coverage in addition to deferring payment on your student loan for that working year.
TeachAmerica: TeachAmerica will award $10,700 towards payment of your federal student loans when you complete a total of two years teaching through their organization. You will most likely be teaching in high-risk schools during this time, and be sure to check that you are still eligible for the ward if you worked previously with Americorps.
Public service worker programs, income-based loan forgiveness, federal direct loan consolidation, and private student loan forgiveness are also available.
Complicated, But Doable With Time, Patience, Commitment
Myths about paying down your student loan fast can be confusing and daunting, but don't give up. With time, commitment and due diligence to your chosen career, repaying your student loan is possible.