It can be really tough dealing with student loans. Whether you’re paying them off while you’re still in school or after you’ve graduated, it can be overwhelming to consider the debt while dealing with other stuff. You’ve got tons of responsibilities that require your attention both mentally and financially, and it’s not like you want to lose your social life completely.
Although there are financial aid and scholarships available for both EU and non-EU citizens, a lot of students still end up having to take out a loan to fund their higher education.
It can take a toll when you’re struggling to manage your debt, especially when you somehow end up owing more than you took out in the first place. A Momentive survey of student loan borrowers revealed that 60% feel that the loan has negatively affected their mental health. This is validated even more by studies from the Health and Social Care in the Community Journal that show increased stress, depression, and psychological problems linked to student loans.
The countries with the highest student loan debts are the UK, Netherlands, USA, Canada, Australia, and Sweden. When you consider the numbers from the top countries in debt alone, that comes out to an average of $29,895 (£23,482). It’s not unheard of for loans to go higher or lower than that, but it all comes down to finding ways to manage the loan from month-to-month.
There are a few methods of easing the burden of your loan. Breaking it down per month may help your mental health as it becomes less daunting to take on. It also helps you to set goals, adapt as needed, and manage your finances on the fly. We’ll discuss some of the important factors here:
Budgeting is a universal tip that works for anyone regardless of where money was borrowed. While you may not be able to get rid of all your loans in one fell swoop, it will be easier to cut out bigger chunks when you budget your money effectively.
Start out with making a clear budget every month and making it easy to check whenever you need to pay for stuff. It may not seem like much, but it’s a good way to monitor your expenses, have a clear overview of payables and objectives, and help in your long-term planning. It’s also a good way of building up financial discipline, which will be crucial on the road to becoming debt-free.
Upgraded Points’ article on the psychology of spending money suggests that creating a monthly budget is one of the most efficient ways to cultivate healthy financial habits. It also stresses the importance of seeking out useful debt management support resources that help with money management, such as the Bureau of the Fiscal Service and its international counterparts.
Refinancing is another way to manage your student loans. Of course, this option would only be viable if you do have an active line of credit and have good credit. Going for this route can potentially afford you lower interest rates, a reduction in monthly payments, and renewed payment terms.
In the EU, you can get loan repayment assistance programs, extended repayment terms, and loan consolidation. If you are a US student, you can go for income-driven repayment plans, direct consolidation, and cosigning refinance. As discussed in our Student Finance guide, there are also public financial aid options available to EU students to help with tuition fees and other expenses that come with student life. Low-income students may even receive allowances to cover the cost of living.
Personalising Your Payment Plan
If you are having trouble with the way your payment plan is going, then you may want to look at alternatives that suit your needs and resources better. There are quite a few options such as graduated repayment and extended repayment, among others.
While a lot of these options result in longer repayment terms, they may be helpful if you’re looking to lower the payments you have to make each month. It’s a good way to make each month’s payables feel less overwhelming, especially if your budget is already maxed out by other financial obligations. Although ongoing students may also find these helpful, alternate plans may be more attractive for those that have already graduated and have entered the workforce. You can potentially integrate these plans with other financing solutions we’ve covered in our graduate finance guide.
You may already be familiar with the concept of loan forgiveness, what with the buzz surrounding US President Joe Biden’s forgiveness plan that is meant to cancel up to $10,000 (£7,850) in federal student debt for Americans that make less than $125,000 (£98,188).
While there is yet to be an official Supreme Court ruling on that, there are existing programs that can enable you to wipe out some if not all of your student loan debt. The exact program you can apply for will depend on what country you reside in.
Loan Forgiveness For US Students
If you are a US student, then it’s important to note that only federal student loans usually get eligibility for debt forgiveness.
The most common type of forgiveness plan is the income-driven repayment plan. This will usually extend your repayment terms from the initial ten-year term. Forgiveness only applies if you’ve already hit the end of your extended plan (usually about 20 years) and hit all your qualifying payments. From there, any remaining balance will simply be wiped. Variants of this plan will be based on your income, which will vary from 10 to 20 percent.
In order to qualify for this type of forgiveness, you will have to have been part of the IDR in the first place. You can ask for assistance from your loan servicer or go via the Federal Student Aid’s online platform.
There are also forgiveness plans that are exclusive to certain lines of work. You can apply for either Public Service Loan Forgiveness or Teacher Loan Forgiveness.
For PSLF, you must work for the United States in a government or nonprofit role at the federal, state, or local level. In order to qualify for this, you must have completed at least 120 payments. Although this doesn’t have to be consecutive, that means you would have to make payments for at least 10 years before getting forgiveness.
For TLF, you can apply after you’ve worked as a teacher for five consecutive academic years. It’s also worth noting that you need to check if your school or educational firm qualifies under the program. The general cap is $5,000 (£3,927), but teachers in special ed and science and math teachers for the secondary level are eligible for up to $17,500 (£13,746) in forgiveness.
Loan Forgiveness For EU/EEA Students
Student forgiveness is more of an accepted concept in the United States than it is in other countries. That said, there are still options available for you if you are a student in the EU.
In the UK, your student loans can get written off depending on the repayment plan you’re on. For Plan 1 loans, those who took out their first student loan on or after September 1st, 2006 will have their remaining debt written off 25 years after the first April they repaid. If they took out their loan before that date, the loans will be written off when they are 65 years old.
For Plan 2 loans, they will be written off 30 years after the April they first were due for repayment. For Plan 4, it also depends on the academic year the loan was taken out. For those taken on or before A.Y. 2006 - 2007, the loan is written off 30 years after the first April of due repayment or when the loanee turns 65 (whichever comes first.) For those that took out the loan during A.Y. 2007 - 2008 and after, the loan gets wiped 30 years after the first April it was due for repayment.
Finally, Plan 5 loans get automatically cancelled after 40 years, from the first April that the student was first due to repay.
Other schools in the EU more commonly have income-based options that simply help students manage their loans more effectively. They also offer a form of forgiveness after a certain amount of time has passed. In Sweden, the percentage that borrowers have to repay will depend on their income, and they will have 25 years to repay it. It’s also worth noting that tuition is free in Sweden, so most debts come from other school requirements. This is alleviated by an easier repayment system.
The Netherlands also has income-based repayment plans for student loans, but they also have more options in terms of debt cancellation. If you repay consistently for 35 years, any remaining balance will be forgiven. You can also request partial or total debt cancellation if you are getting an additional scholarship. DUO will send you a letter in your second year of debt repayment if you are eligible.
On top of that, students are not required to repay their student loans in the first two years after graduation if they are unable to make repayments. After this period, they can apply for a lower repayment amount from DUO. There are also repayment holidays, which allow you to pause repayment for up to 60 months.