Best-Kept Secrets of Student Loan Borrowing

Student loans are both bane and boon – they allow students to gain access to an education they would otherwise have been shut out of, but they also lock these students in a cycle of debt if they cannot earn enough money to pay off their loans in a timely fashion.

Some shady student loan providers promote the latter statement. They want graduates locked in debt so that the accumulated interest rates keep these grads paying for a long, long time to come.

But did you know that you have the following options at your disposal?

Income-Based Repayment– if you took out federal student loans, then you qualify for IBR. This repayment model adjusts to what you earn and the size of your family, meaning significantly lower payments for when you had a difficult year. The minimum amount you could pay is nothing, while payments are capped at 15% of your income.

Public Service Loan Forgiveness – if you work for the government or a non-profit employer and your income is low relative to your debt, then you could gain loan forgiveness in just 10 years instead of the regular 25. These years also add up even if they’re non-consecutive, meaning you can still be eligible for loan forgiveness even if you switch jobs between public, private and back to public sectors again.

Co-signing Liability – co-signing for someone’s student loans puts a big hit on the co-signer’s qualification for further loans like mortgages or auto-loans. No lender tells you this when parents co-sign for their kid’s loans, and will only pop up when mom and/or dad seeks out other loans.

Private Loans as a Last Resort – not only are they more expensive, but they come with none of the safety mechanisms inherent in federal loans. You are completely at the mercy of the lender, and the only thing you can do if you can’t pay up is to read the fine print and pray that it has a measure to protect you in case you find yourself unemployed or underemployed.

But unlike credit cards, not even a declaration of bankruptcy will save you from private loans unless you can prove you are experiencing undue hardship.