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 Pay As You Earn repayment program, your monthly payments on federal loans will be capped at a 10% of your income. In addition, your outstanding debt is forgiven after 20 years of on-time payments. This new provision applies to federal student loans taken out after October 2007; it does not apply to any private loans.

UPDATE: Under an expansion of the program, those who borrowed before October 2007 will have their federal loans eligible for the same treatment beginning in 2015.

(Note that under the current rules, for federal student loans taken out before October 2007, your payments are capped at 15% of your income and must be paid on time for 25 years to be forgiven. This is part of the income-based repayment program. Visit for more info.)

See if you're eligible and learn more about Pay As You Earn here.

Meanwhile, MBAs are a hot degree area in the business world. Yet new figures from The Wall Street Journal  show that the average MBA degree debt has climbed to $81,758. At the same time, average pay for an MBA holder with three years of experience is $53,900.

Don't get me wrong; an MBA can be a good step on the career ladder in business. But numbers-oriented MBAs ("hard MBAs") are generally more valuable than management-oriented MBAs ("soft MBAs").

Clark's 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.


The worst loan available is…

I want you to avoid private student loans at all costs. 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 no wiggle room when it comes to repayment options, like you do with federal loans as I explain below. Private student loans typically can't even be dismissed in bankruptcy.

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 Charter One is advertising an Education Refinance Loan with fixed rates as low as 5.24% and a variable rate of 2.84% above the one-month LIBOR rate.

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. Federal student loans are *not* eligible for this refi offer.

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

Image of Clark Howard About the author: Clark Howard

Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. View More Articles

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