Ten Best student loan loopholes and hacks

Get to know some unique ways to pay off your student loans debt. This article discusses loopholes and hacks which the borrowers can use to pay off their student loans faster

Updated by Chinmoy Dutta on 9th September 2020

Student loan repayment can sometimes be very hectic as it is not an easy task to pay off your student loans. But with full knowledge on how student loan repayment and student loan forgiveness works, it shall become easy for borrowers to repay their student loans. Borrowers with student loans often get under pressure circumstances due to some terms and conditions they might not have noticed earlier. The strategies listed under will help the borrowers and act as guidance so that they can use existing student loan rules, regulation and terms and conditions to their advantage.

Using the system to beat student debts

There are various ways in which the existing system can help you with the repayment of your student loans and/or help you save money while repaying your loans.

  • Letting the government cover your student loan interest: The latest student repayment plan, Revised Pay As You Earn Plan (REPAYE) was created to lower the payments of borrowers who did not qualify for PAYE. A great perk of REPAYE is that the government pays half the interest that the student loan payment does not cover. Borrowers with a large number of balances but smaller income can save a lot from this plan

  • Getting lower student loan payments: Income-driven repayment plans such as IBR, REPAYE, PAYE are a good option for borrowers because they are dependent on what the borrower can afford to pay rather than what they owe. Borrowers can save some money for retirement by putting their money in pre-tax retirement accounts which shields that money from being counted as income (while calculating monthly payments).

  • Utilizing student loan forgiveness programs: The most common ways of getting student loan forgiveness are through the Public Service Loan Forgiveness program and forgiveness after 20-25 years of income-driven payments. This program can save thousands of dollars depending upon borrower’s debt and income levels. The key here is to understand the terms and conditions of the program fully. Making any mistakes in the enrollment process can leave customers to start from the beginning

  • Keep spousal income out of the calculation of student loan payment: While calculating the borrower’s ability to pay student loans, the government normally includes the spouse’s income as well. But if a borrower on PAYE or IBR files their taxes separately, they can exclude spousal income. This results in lower student loan payments but results in a higher tax bill.

  • Multiple refinancing: Refinancing student loans has no transaction cost as opposed to in a mortgage, where they have high refinancing costs. Therefore, borrowers who improved their credit score or income can often refinance at even a lower rate than the previous refinancing. There is no limitation on the number of times refinancing is done and many companies offer refinancing.

  • Avoid forbearance, deferments and interest-only payments: These three options are designed such that they increase only lender profits and provide little help to borrowers. In each of these options, the interest grows but the principal remains untouched. One should know payment towards interest increases the lender’s profit while payment towards the principal reduces the borrower’s debt. These options do not help for borrowers who do not expect their finances to improve.

  • Getting help from student loan lenders: Private Student Loans are not known to be too helpful. Hence it is always advised to go for Federal student loans whenever possible. With private lenders, troubled borrowers are only offered help in the form of deferment and forbearance. During this time, interest continues to accrue and the debt goes up. Borrowers should push the issue to their lenders and get them to lower the interest rates.

  • Always seek for lower payments: Borrowers rarely seek for lower payments if they can afford the minimum payment. If a borrower can get lower payments on low-interest loans, they can set up for repaying high-interest debts. This does not increase monthly spending but eliminates student loans faster.

  • Force lenders to respond to borrower issues with government oversight: The Consumer Financial Protection Bureau (CFPB) offers protection for the student loan borrowers. They have a procedure for filing complaints against student loan lenders and servicers. Borrowers have received over $750 million from student loan lenders because of the CFPB complaint process.

  • Take advantage of federal loan borrower protections and low private loan interest: Since the federal student loans provide a variety of borrower protections, it is advised to borrow federal student loans during loans. The protections offered varies from student loan forgiveness to income-driven repayment plans 

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We hope that some of the hacks must have helped you in clearing your student loan debts faster. Once you are done with your student loan debts, you can start towards your financial goals. Once your debts get paid, you might have some extra money every month that was used to cover up your loan repayments. In this scenario, your first priority should be maxing out your retirement accounts considering the tax benefits they bestow. It is advised you max out your 401K and once done max out your IRA.

Once you are done with these, you can look forward to investing with medium-term goals, say a Betterment account.