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How to Wipe Out Your Student Loans and Be Debt Free Fast: Everything You Need to Know Explained Simply

How to Wipe Out Your Student Loans and Be Debt Free Fast: Everything You Need to Know Explained Simply

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How to Wipe Out Your Student Loans and Be Debt Free Fast: Everything You Need to Know Explained Simply

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3 ore
Aug 19, 2009


According to a recent study by the National Center for Education Statistics, an estimated 65 percent of recent college graduates are burdened by student loans. Although the average debt is $19,000, loans can exceed $50,000 and may be much higher for those who attend graduate school, law school, or medical school. Many students, faced with the task of repaying such a large amount of money, become overwhelmed merely thinking about it. But, using this new book, you can learn how to eliminate your student loans and be debt free.

In this exhaustively researched book, you will learn everything you need to know about student loans, including grace periods, deferment, forbearance, interest rates, co-signors, exit counseling, prepayment, discharges, cancellation, default, and much more. You will create a repayment schedule; understand the various repayment options, such as graduated repayment, level repayment, income-sensitive repayment, extended repayment, serialization, and income-contingent repayment; and be able to choose the appropriate plan for your unique situation.

Additionally, you will learn how to save money through consolidation, how to secure the best interest rate, how consolidating can improve your credit score, how to use lender incentive programs to save money, and how to lower interest rates.

Whether you are a current student looking to get a jumpstart on repayment or you are a recent graduate trying to wade through the letters you are receiving from your lenders and consolidation companies, How to Wipe Out Your Student Loans and Be Debt Free will be an indispensable companion.

Atlantic Publishing is a small, independent publishing company based in Ocala, Florida. Founded over twenty years ago in the company president’s garage, Atlantic Publishing has grown to become a renowned resource for non-fiction books. Today, over 450 titles are in print covering subjects such as small business, healthy living, management, finance, careers, and real estate. Atlantic Publishing prides itself on producing award winning, high-quality manuals that give readers up-to-date, pertinent information, real-world examples, and case studies with expert advice. Every book has resources, contact information, and web sites of the products or companies discussed.

This Atlantic Publishing eBook was professionally written, edited, fact checked, proofed and designed. The print version of this book is 288 pages and you receive exactly the same content. Over the years our books have won dozens of book awards for content, cover design and interior design including the prestigious Benjamin Franklin award for excellence in publishing. We are proud of the high quality of our books and hope you will enjoy this eBook version.

Aug 19, 2009

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How to Wipe Out Your Student Loans and Be Debt Free Fast - Martha Maeda

How to Wipe Out Your Student Loans and Be Debt Free Fast:

Everything You Need to Know Explained Simply

By Martha Maeda

How to wipe out your student loans and be debt free fast: everything you need to know explained simply

Copyright © 2009 Atlantic Publishing Group, Inc.

1405 SW 6th Avenue • Ocala, Florida 34471 • Phone 800-814-1132 • Fax 352-622-1875

Web site: • E-mail:

SAN Number: 268-1250

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be sent to Atlantic Publishing Group, Inc., 1405 SW 6th Avenue, Ocala, Florida 34471.

This publication is protected under the US Copyright Act of 1976 and all other applicable international, federal, state and local laws, and all rights are reserved, including resale rights: you are not allowed to give or sell this ebook to anyone else. If you received this publication from anyone other than an authorized seller you have received a pirated copy. Please contact us via e-mail at and notify us of the situation.

ISBN-13: 978-1-60138-216-0

ISBN-10: 1-60138-216-2

Library of Congress Cataloging-in-Publication Data

Maeda, Martha, 1953-

How to wipe out your student loans and be debt free fast : everything you need to know explained simply / by Martha Maeda.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-1-60138-216-0 (alk. paper)

ISBN-10: 1-60138-216-2 (alk. paper)

1. Student loans--United States. 2. Finance, Personal--United States. I. Title.

LB2340.2.M34 2009



LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or Web site is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Web site may provide or recommendations it may make. Further, readers should be aware that Internet Web sites listed in this work may have changed or disappeared between when this work was written and when it is read.

This Atlantic Publishing eBook was professionally written, edited, fact checked, proofed and designed. Over the years our books have won dozens of book awards for content, cover design and interior design including the prestigious Benjamin Franklin award for excellence in publishing. We are proud of the high quality of our books and hope you will enjoy this eBook version, which is the same content as the print version.

Table of Contents


SECTION ONE: Understanding Student Loans

Chapter 1: Financing an Education

Chapter 2: What Are Student Loans?

Chapter 3: Government Student Loans

Chapter 4: Private Loans

Chapter 5: Your Promissory Note

Chapter 6: Interest

SECTION TWO: Paying Off Your Student Loans

Chapter 7: What to Do First

Chapter 8: Why You Should Pay Off Your Student Loans Quickly

Chapter 9: Setting Goals and Priorities

Chapter 10: Choosing a Student Loan Repayment Plan

Chapter 11: Managing Your Loan Payments

Chapter 12: Getting Someone Else to Pay Off Your Loans

Chapter 13: Finding a Good Job

Chapter 14: Making a Budget and Sticking to It

Chapter 15: Making the Most of Your Money

Chapter 16: Adding to Your Income

Chapter 17: Your Other Debt

Chapter 18: When Things Go Wrong

Chapter 19: The Final Option: Loan Discharge

Chapter 20: Student Loans and Taxes

Chapter 21: Quick Tips for Paying Off Your Student Loans Fast

Appendix A: Creating a Repayment Plan

Appendix B: Glossary

About the Author



Congratulations. After years of hard work, you have finally walked across the stage, grasped your diploma, and had your photo taken in a cap and gown. Today is the first day of the rest of your life. Unlike some of your acquaintances, however, whose families were able to start saving up for their education the day they were born, or who were so brilliant or meritorious that they received a full scholarship, you are walking out into the world burdened with debt. You are among the 65 percent of American college students who are starting their adult lives owing thousands of dollars in student loans. You may feel worried, hopeless, or even depressed, but you should not. You have just accomplished a lifetime achievement. In spite of difficult and even prohibitive financial circumstances, you have acquired a higher education. Now you are about to begin learning some new lessons, lessons that will equip you to make the most of every opportunity and give you the skills you need to realize your highest goals.

You will not be able to pay off your student loans overnight, unless you have a rare stroke of luck. Liberating yourself from debt is a steady process that occurs step-by-step, over an extended period of time. It involves internalizing two basic principles: minimize the amount you have to pay, and make the most of your earning power and your income.

If you are still a student, watching your student loans pile up, this book will help you plan for the future and take advantage of every possible opportunity to lower your interest rates and the amount you will eventually pay. If you are already in default, you will learn the steps that will put you back on the track to good credit and peace of mind.

This book will reveal how to turn a liability into an asset. You will learn how to do each of the following:

Take control of your finances

Make the most of what you have

Set goals

Look for new opportunities

Avoid pitfalls

Manage adversity

You will also learn how to navigate the complexities of student loans and credit card debt, and where to turn for help and information when you need it. You will understand how to develop a positive attitude and appreciate your own value. There is no magic formula that will make debt automatically disappear, there is something better: the discovery that you have the power to direct your own life.

Table of Contents


Understanding Student Loans

Table of Contents

Chapter 1

Financing an Education

How Much Does an Education Cost?

According to the College Board’s 2007 Trends in College Pricing report, the average annual cost — including tuition, fees, and room and board — of attending a private four-year college in the United States in 2006-2007 was $30,367, and the average annual cost of a public four-year college was $12,796. By the 2007-2008 academic year, costs had risen by approximately 5.9 percent. Based on these averages, four years at a private college will end up costing about $129,000, and four years at a public college, about $54,200. This is not taking into account all the students who spend five or six years at college before graduating with a degree.

It makes economic sense for a modern nation to have a large number of well-educated, highly qualified people in its work force. Education also reduces the number of people living in poverty. Studies indicate that almost all graduating high school students who have the academic qualifications to enter college do go on to get at least some higher education. Most students cannot afford a college education without receiving some kind of financial assistance or taking out a loan. The United States government supports a number of programs that encourage qualified students to get a higher education, including grants and affordable low-interest loans.

Is It Worth the Price?

A 2007 College Board Study, Education Pays, found that graduates with a bachelor’s degree earn over 60 percent more than people with only a high school diploma. Over a lifetime, this translates into a difference of more than $800,000. Seen in these terms, a loan taken out to finance a bachelor’s degree is a worthwhile investment. Depending on the amount of time it takes to pay off the loan, however, the actual cost of the bachelor’s degree may double because of the interest paid. Using the figures above, if a student uses loans to pay one-third of his or her college costs, the total cost of four years at a private college could end up being $214,400 to $257,570, and the total cost of four years at a public college could be $90,340 to $108,400. A bachelor’s degree can cost as much as a house.

The benefits of a college degree cannot be measured in financial terms alone. The knowledge and experience gained at school broaden and enrich your mind. Studying with people from different backgrounds and cultures awakens your awareness of the many possibilities that exist in this world. Many college students make lifelong friendships and establish a network of contacts that helps them for decades afterwards.

In a speech during his 2008 presidential campaign, President Obama urged students at the prestigious Wharton School of Business to consider entering a career in public service. A career in which the starting annual salary is $27,000 to $33,000 is not appealing to someone who has just spent $80,000 to earn an MBA. The United States government recognizes that many fields requiring extensive training and expertise, such as healthcare, law enforcement, and teaching, do not offer high salaries to offset the cost of education. Federal and state programs offer student loan forgiveness to borrowers who enter certain types of public service, enlist in the military, or serve in areas of critical need.

Explore All the Possibilities

Borrowing money to pay for a college education should be your last resort. Before taking out student loans, research all the options available to you. You will pay less for an education if you attend a state university in the state where you are a resident. Many states have merit-based and need-based scholarship programs for qualified students. To become eligible, you may need to fulfill requirements such as maintaining a specific grade level in high school, achieving certain scores on SAT or ACT exams, and performing a number of community service hours. Check with your high-school counselor or local school district during your junior year to see what programs are available and how you can qualify. If you are accepted at a private college, you may receive grants or scholarships to help pay for tuition, books, and room and board. In 1998, Princeton University initiated a no-loan movement to eliminate loans altogether from the financial aid packages of low-income students. Today, approximately two-fifths of colleges with endowments exceeding one billion dollars have adopted no-loans policies.

Most schools offer a combination of need-based and merit-based scholarships, work study, and federally-insured loans. Work study is a federally subsidized program in which students are paid to work a maximum of 12 hours per week in a job at their college or university. Need-based scholarships require documentation of a student’s financial circumstances, usually through the Free Application for Federal Student Aid (FAFSA) supported by the previous year’s tax returns for the student and parents. Merit-based scholarships are based on test scores, academic performance, and sometimes a student’s field of study or involvement in community service. Each school has a limited amount of funds available for scholarships and grants, and must determine how that money will be distributed. After you have been accepted by a college or university, you will receive an award letter giving the details of the financial aid package offered to you by the school. has two tools — available at — to help you compare award letters from different colleges. The best financial aid package is the one that offers the largest amount in grants or scholarships because these do not have to be paid back — unless you leave school without completing the course of study. Perkins and Subsidized Stafford Loans are both need-based and offer the lowest interest rates and best repayment and forgiveness options.

There may be other ways to subsidize your college education. Many schools give free housing to students employed as Resident Advisors who live in the dormitories and supervise younger students. You may be able to get a stipend if you serve in your school’s Student Government Association or in some other official capacity.

College savings plans, called 529 Plans, allow families to set aside tax-free savings to pay for qualified education expenses. Pre-paid College Tuition and Pre-paid College Housing plans in many states lock in current tuition and housing rates when you pay in advance for students who will enter college in the future.

Some employers offer grants, scholarships, or other educational assistance for the children of their employees, particularly if the student is entering a field related to the employer’s business. Check whether you or your parents’ employer offers education benefits.

After calculating the long-term cost of a student loan, some families may decide it is more prudent to finance at least part of a college education in some other way, such as cashing in bonds, selling stocks, or selling some other asset. Parents may prefer to make regular payments on a low-interest home equity loan than pay a slightly higher interest on a Parental Loan for Undergraduate Studies (PLUS).

Savvy Student Tip:

Don’t use an IRA or 401(k) plan to pay for an education. Each family’s circumstances are unique. Decisions about funding an education should be made after careful consideration of a family’s current situation and future plans. Though parents can withdraw funds from an IRA or 401(k) to pay for education expenses, the future consequences may be serious. Annual contribution limits restrict the amount that can be put back into a tax-deferred account, and a large withdrawal could leave the parents short of funds for their retirement and dependent upon the student in their old age.

Before considering a private student loan, be sure you have received the maximum amount in need-based subsidized federal loans and unsubsidized Stafford loans. Talk to the financial aid office at your school to make sure that you have exhausted all other options. Private loans are not subject to the same government regulation as federally-insured loans and do not offer the same loan forgiveness for death, disability, and public service employment.

Case study: Student Loans Help Pay for Higher Education

Tia T. Gordon, Communications and Marketing Consultant, Institute for Higher Education Policy.

The Institute for Higher Education Policy (IHEP) is an independent, nonprofit organization that is dedicated to access and success in postsecondary education around the world. Based in Washington, D.C., IHEP uses unique research and innovative programs to inform key decision makers who shape public policy and support economic and social development.

Co-founded in 1993 by higher education expert and Lumina Foundation for Education President and CEO Jamie P. Merisotis, IHEP offers a nonpartisan perspective through a staff that includes some of the most respected professionals in the fields of public policy and research. It is committed to quality of opportunity for all and helps low-income, minority, and other historically underrepresented populations gain access and achieve success in higher education. This devotion is the major factor for its five areas of focus: Access and Success, Accountability, Diversity, Finance, and Global Impact.

Institute for Higher Education Policy

1320 19th Street, NW, Suite 400

Washington, DC 20036

Tel: (202) 861-8223

Fax: (202) 861-9307

Web site:

"Student loans are an important tool for students to pay for higher education, especially when grant aid alone does not cover tuition and other expenses. It is important for students to understand the benefits and disadvantages of obtaining a

loan, as well an estimate of what they will pay after graduation. For some students, loans are necessary in order to attend college and achieve a degree, and may even be a better choice than working full-time or using other strategies to pay for college. However, there is concern about students who take on too much debt and cannot repay, especially if they drop out without a degree.

"Little research has been done in this area, but our sense is that loan forgiveness programs for teachers and health care providers are underutilized.

"Students have different reasons for attending private institutions and varying abilities to take on private loans. It is important for students and their families to understand how private loans differ from federal student loans, especially in regard to the adjustable rate terms that most private loans include. Clearly, students should maximize federal student loans before turning to private loans. But as with loans in general, it is important that students and families have a plan for repaying a private loan before obtaining one.

"Financial aid offices generally first package the federal and state grants for which a student is eligible. Federal and state aid have requirements that usually cannot be changed except in isolated instances. Financial aid offices also consider whether a student is eligible for institutional aid (grants or scholarships offered by the college itself), and this is where some flexibility may exist.

Students (and their parents) may not be as well informed as they should when it comes to understanding the entire financial aid process. We recommend that students educate themselves as much as possible to become knowledgeable about what types of financial aid is available to them and, if necessary, how they will manage that debt upon graduating.

Financial Aid

How to Apply for Financial Aid

To apply for financial aid, fill out the Free Application for Federal Student Aid (FAFSA), available on the Federal Student Aid Web site, at You can also request a paper FAFSA by calling the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243) or 1-319-337-5665, or from your high-school guidance counselor. The FAFSA is used to determine your eligibility not only for federal assistance, but for financial aid from your state and school.

Savvy Student Tip:

There is no fee for filling out a FAFSA. You can get assistance by filling it out online, by calling 1-800-4-FED-AID, or from a high-school guidance counselor. Some private businesses pose as government agencies and try to charge a fee for filling out the FAFSA or applying for scholarships. Be wary of any consultant or organization that asks you for money.

The FAFSA gathers important information that determines your eligibility for need-based grants and subsidized loans. Information is required for both the student and parents, and includes some data from the previous year’s tax returns, such as the Adjusted Gross Income (AGI) and number of dependents. If your tax returns are not available, you can use a worksheet to estimate annual income. A student who is not able to fill in the information on his or her parents’ financial status will need to communicate individually with the financial aid department of each school.

Each year, the new FAFSA becomes available on January 15. Fill out your FAFSA as early as possible, so that the information can be transmitted to your school financial aid office. Schools

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