New ways to pay down your student loan debt

Student loan debt is now nearly $1 trillion collectively for borrowers in the United States. Yet there could be help on the horizon if you have federal student loan debt.

Here’s a new way to pay off your student loans…

Under the new Revised Pay As You Earn (Repaye) repayment program, your monthly payments on federal loans will be capped at a 10% of your discretionary income. The new rules, which should be forthcoming in a couple of weeks, do away with the October 2007 cut-off date for federal student loans. Going forward, any federal student loan will be eligible, regardless of when you took it out.

Outstanding debt will be forgiven after 20 years of on-time payments for those who only borrowed undergraduate loans. If you took out graduate loans, you’ll have to make on-time payments for 25 years before the remaining debt is forgiven. And, of course, as I’ve mentioned before, you can get student loan forgiveness after 10 years for working in eligible professions.

But note this well: Under the tax code as it’s written now, you will have to pay tax on any amount that’s forgiven. That will still be much less than what you would have paid in loans, but it is important to mention!

When the full details of Repaye are announced, I’ll be sure to update my student loan guide.

None of the new terms coming from Repaye apply to any private loans. That’s why I’m constantly warning people away from taking private student loans out!

Back in 2005, the private student loan industry bought off enough politicians to gain the right to do any and all tactics short of causing you bodily harm in their efforts to collect on their money. You have very little wiggle room when it comes to repayment options, like you do with federal loans as I explain above. Private student loans typically can’t even be dismissed in bankruptcy.

Read more: Mom mad at high school for throwing out her son’s lunch

My rules of student loan borrowing

• Never borrow more for a 4-year degree than the entry level salary you expect to earn your first year after receiving that degree.
• Consider doing the first 2 years of your studies at a community college, and then transferring those credits to the school from which you want your degree.
• Never borrow any private student loan money! If a degree exceeds what you can borrow under the federal student loan program, you should either pick a cheaper school or work your way through school.

A new way to refinance private student loans?

Recently, the private student loan market began opening up with the first real chance of offering refinances that I’ve seen in about 10 years.

The Cleveland Plain Dealer  reports a company called Citizens Bank is advertising an Education Refinance Loan with fixed rates as low as 4.74% and a variable rate of 2.35%. Those low rates are contigent on two things: A good credit score and a co-signer. So this offer is of no help if you’re falling behind on debts and your credit is shot. You can refinance anywhere from $10,000 to $170,000 in private student loans with 15 or 20-year repayment options.

Private student loans should still be avoided at all costs. But this option may help you if you’re already stuck in one.

Read more: Is graduate school worth the cost?

For more money-saving advice, see our Education section.