It’s hard to believe, but it’s been more than a decade since the Great Recession. Remember how it brought multi-billion-dollar financial corporations to their knees and nearly chased the big American automakers right out of Detroit? Both industries got a bailout, to the tune of $627 billion .
So if the giants of capitalism got a pass, will the students paying loans get one? Will there be a student debt bailout for you and your former classmates?
The Impact of Student Loan Debt on Your Future
When you earned your diploma, you also most likely earned your way into a not-so-exclusive club. As many as 44 million borrowers owe $1.5 trillion in student loans in America. For comparison, that’s about $500 billion higher than the outstanding credit card debt in the country.
Since the amount of student debt has tripled over the past two decades , author and financial aid expert Mark Kantrowitz says it qualifies, to him, as a crisis.
“If we look only at students who borrow to attend college, it appears that more than a quarter (27.2%) of them are graduating with excessive debt,” he writes.
Why Wouldn’t a Student Loan Bailout Work?
While it sounds like a good idea in the face of high debt balances and delayed dreams, the reason it probably won’t work is the sheer magnitude of student loan debt owed by Americans. As of this writing, it would cost “more than any proposed infrastructure plan, military expansion, or any other government initiative that is currently being proposed would cost,” says Jordan Rothman, attorney and personal finance columnist.
Rothman is not your normal borrower. He paid off nearly $200,000 in student loans in less than four years and wrote an online diary about his experience.
Additionally, the optics of a bailout, as they say, aren’t necessarily good. For example, students with law degrees may have high debt balances, but also start lucrative careers immediately after graduation. How would it look if the government erased the loans of a lawyer earning $250,000 a year?
Besides the potential issue of fairness, wiping out student loan debts may also have moral side to consider. Former students who successfully paid off their loans may not appreciate seeing millions of current borrowers let off the hook.
And while you can default on a mortgage, or get rid of most credit card debt by filing for bankruptcy, most student loans are owned by the federal government, which is not typically forgiving of debt holders.
Paying Down Your Student Loans
If you happen to work in a qualifying public service field or as a teacher , and you have federal loans, you may be able to qualify for the Public Service Loan Forgiveness (PSLF) program. Unfortunately, the pool of people qualifying for loan forgiveness tends to be relatively small.
In addition to the forgiveness option, qualified federal student loan borrowers may be able to take advantage of reduced or delayed payments or have the government pay the interest on their loans while they attend school.
Another way some borrowers seek to ease student loan debt is through income-driven repayment plans. As the term suggests, the amount you pay is adjusted based on your income, usually 10% of your discretionary income. It’s intended to make your monthly payment more affordable.
And while you may not be a teacher or work in public service, you can find loan forgiveness arrangements if you choose the right career . There are forgiveness programs for doctors, lawyers, veterinarians, and others. To be eligible, you are usually required to work for a specific time before you receive the benefit.
How Refinancing Can Help with Student Loans
When you refinance your student loans, you may qualify for a lower interest rate, which can help you shave off thousands of dollars over the life of your loan. It’s possible to refinance a private, federal, or Graduate PLUS loan, plus there is the option to consolidate several loans into one easier-to-handle payment.
If you decide to refinance, you’ll have a choice between a fixed or variable rate loan, both of which carry their own risks and rewards. Generally, fixed rates stay the same for the life of the loan, so you always know what your monthly payment will be.
Variable-rate loans can fluctuate as the economy roars or slumps. They’re usually tied to a well-known index, so your payment amount may fluctuate over time. The potential benefit, however, is that initially the rate is sometimes lower than the fixed rate.
You may also have term options if you refinance. You can shorten your term length, which can help get you out of debt faster, or extend your term, which could ideally lower your monthly payment.
How to Prepare to Refinance Your Loans
Before you apply for refinancing, you will likely want to take stock of all your student loans. Many student loan borrowers have more than just one. Make sure you understand the interest rate and term for each one, as well as understanding whether it’s a federal or private loan.
If you’re refinancing your federal loans into private loans, you’ll be giving up federal protections such as deferral, forbearance, and income-driven repayment plans. So, for example, if you intend to go back to graduate school, refinancing loans might not be the right option, because you might forfeit the right to defer your federal loans while you’re in school.
If you still wish to refinance, it’s a good idea to first add up all your student loan balances and determine what that total is. Then jot down how many years you have to go on your longest-term loan. Once you’ve shopped around for refinancing rates, you can compare the rate and term of any potential new loan offers to the ones you’re already working with. It’s much easier to then see how much you could save by refinancing.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The individuals quoted in this article were not compensated for their participation. Their advice is educational in nature, is not individualized, and is may not be applicable to your unique situation. It is not intended to serve as the primary or sole basis for your financial decisions.