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

Strategies for keeping college affordable.

You don’t need us to tell you how the cost of getting a college education has gone through the roof. According to the College Board’s “Trends in College Pricing 2013” report, the average tuition and fees totaled $22,203 and $30,094 at public and private four-year institutions, respectively, for the 2013-2014 academic year.1

For many, that 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. And, the numbers are staggering. Outstanding student debt stood at $1 trillion in the third quarter of 2013, and the share of loans delinquent 90 days or more rose to 11.8%, according to the Federal Reserve Bank of New York. By contrast, delinquencies for mortgage, credit card, and auto debt all have declined from their peaks.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,3 41% of the more than 200 people surveyed said they have delayed saving for retirement, 40% have put off buying new cars, and 29% have postponed buying a house.

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.

Here’s why.

According to a Huffington Post article, “Earnings Gap Between College And High School Grads Reaches Highest Point In 48 Years,” young adults with just a high-school diploma earned 62% of the typical salary of college graduates. That’s down from 81% in 1965, the earliest year for which comparable data are available.4

The economic analysis finds that college graduates ages 25 to 32 who are working full time earn about $17,500 more than employed high school grads. The pay gap was significantly smaller in previous generations. The college-educated are more likely to be employed full time than their less-educated counterparts (89% vs. 82%) and significantly less likely to be unemployed (3.8% vs. 12.2%).5

Student loans: A serious medium-term financial burden.
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 to help mitigate the impact 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%. Lenders prefer direct deposit because it increases the likelihood that you’ll make payments on time. While 0.25% may seem insignificant, it’s actually very significant—because over your loan’s life a 0.25% 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 2015 budget proposal—which requires congressional approval—would allow borrowers in this program to exclude any forgiven loan amounts from their reported gross income on their income taxes.6

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%. 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 employers to receive up to $10,000 a year in assistance paying back federal student loans.7 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.

1 https://trends.collegeboard.org/sites/default/files/college-pricing-2013-full-report.pdf.
2 http://www.businessweek.com/articles/2014-01-16/student-loans-the-next-big-threat-to-the-u-dot-s-dot-economy
3 http://www.aicpa.org/press/pressreleases/2013/pages/aicpa-survey-reveals-effects-regrets-student-loan-debt.aspx
4 http://www.huffingtonpost.com/2014/02/11/earnings-gap-college-grads-high-school_n_4768780.html
5 http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/
6 General Explanations of the Administration's Fiscal Year 2015 Revenue Proposal, Department of the Treasury, March 2014, http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx
7 www.opm.gov/policy-data-oversight/pay-leave/student-loan-repayment/

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.