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Paying off student loans without sacrificing your long-term financial health

Strategies for keeping college affordable

You don’t need me to tell you how the cost of getting a college education has gone through the roof.

Last year, the price of tuition, fees, and room and board averaged a record $39,520 for private nonprofit colleges and $17,860 for public ones.1

For many, that has meant they’ve had to borrow money for the education they want. About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders. Total outstanding student loan debt now stands at $966 billion, greater than outstanding credit card debt, according the Federal Reserve Bank of New York. For all borrowers, the average debt in 2012 was $26,600.2

Today, Americans (maybe you’re one of them) are making serious sacrifices to keep up with their loan payments. According to a 2013 survey from the American Institute of CPAs, 41 percent of the more than 200 people surveyed said they have delayed saving for retirement, 40 percent have put off buying new cars, and 29 percent have postponed buying a house. Whether you’re paying off student loans now or thinking about taking out a loan for college, or a parent getting ready to send your child to college, there are several avenues to explore so you don’t have to sacrifice your long-term financial health.

College education: A great long-term investment
Remember, even though costs continue to go up and many incur debt, a college education’s value remains a great long-term investment.

It’s easy to understand why.

A 2013 study by the Pew Charitable Trusts, shows that Americans age 21-24 with a bachelor’s degree had an employment rate 10 points higher than those with only a high school degree.

And college graduates typically make more money, sometimes substantially more depending on the field they enter.

Three decades ago, fulltime workers with a bachelor’s degree made 40 percent more than those with only a high-school diploma. In 2011, the gap reached 83 percent.3

The bottom line for someone considering a college education: It’s a great long-term investment.

Student loans: A serious medium-term financial burden
Here are a few things you can do to mitigate the impact of college debt has on meeting your long-term financial goals.

Extend the life of your loans
If your repayment plan is less than 20 years and you are a recent graduate with tight finances, it may make sense to see if your lender(s) will extend repayment to 30 years, thus lowering your current out-of-pocket expenses.

Reduce your interest rates
Almost every student loan lender (including the Department of Education) has some kind of interest rate discount for people who set up direct deposit. Usually it’s around 0.25 percent. Lenders prefer direct deposit because it increases the likelihood that you’ll make payments on time. While 0.25 percent may seem insignificant, it’s actually very significant — because over your loan’s life a quarter-percent discount could knock off a big chunk of the interest you’ll pay.

Check with your lender to see if they have any other interest rate deductions. Some may be able to reduce your interest rate if you have a high credit score or a history of on-time payments.

Consolidate your loans
The federal government and some private lenders offer consolidation loans. In some cases, you can also reduce your interest rate with one of these consolidation loans.

See if you qualify for income based repayment
If you have a federal loan and you are on a limited income, the government’s Income-Based Repayment plan allows you to pay based on what you earn, not on what your loan payments are supposed to be. Under the program, most borrowers with loans issued since October 2007 are eligible to participate.

President Obama’s 2013 budget proposal—which requires congressional approval—would let all borrowers with pre-2007 loans participate and would make tax exempt any debt forgiven through the program.

Home equity loans
If you own a home, with interest rates so low it may be worth taking out an equity loan to pay off student loans, most of which are locked in at 6.8 percent. It’s important to calculate you total interest costs over the life of the new equity loan versus what you would pay for the student loan.

Get help from your employer
There are several programs in place that help you pay back student loans. Some are through employers, while others are public-service oriented.

People who work full-time in public service can have their eligible remaining federal student loans discharged after ten years thanks to the Public Service Loan Forgiveness program. The U.S. Office of Personnel Management’s Student Loan Repayment Program allows government employees to receive up to $10,000 a year in assistance paying back federal student loans.

There are loan repayment support programs available for nurses, teachers, and members of the military as well.

And some private employees have programs. Ask your Human Resources representative.

Life insurance
It’s important to remember that should something happen to you, your family would be responsible for paying back your loans. Consider life insurance as a way to protect your family from having to bear that burden.

1New York Times, October 24, 2012, “Report Says College Prices, Once Stable, Are Up Again.”
2CNN Money, May 9, 2013, “Student Debt Delays Spending, Savings, and Marriage. ”
3New York Times, June 25, 2011, “Even for Cashiers, College Pays Off. ”

U.S. Office of Personnel Management

Sallie Mae

This article is for informational purposes only. Neither New York Life Insurance Company, nor its agents, provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.


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