'A lot of people don't need to pay back their debt': A student-loan expert explains why popular repayment advice is false - and shares how to save up to 50% on interest payments

Doug Murray/Icon Sportswire/Getty Images

• Travis Hornsby, founder and CEO of Student Loan Planner, advocates for refinancing student loans under a strict three-point criteria.
• He also says that "a lot" of people would be better off exploring student loan forgiveness plans instead of refinancing.
• Hornsby also shares a little known payment option that provides a 50% interest subsidy.
• Click here for more BI Prime stories.

With student loan debt currently tipping the scales around $1.6 trillion, it's no wonder why some are referring to the phenomenon as a "crisis." Tepid wage growth, hard-to-come-by high-paying jobs, and increasing housing costs don't seem to be helping the cause either.

"Honestly, universities started to act (in my opinion) a little bit more like corporations and hedge funds than actual not-for-profit institutions," said Travis Hornsby, founder and CEO of Student Loan Planner, on the Millennial Investing podcast. "And the government enabled this by throwing gasoline onto the fire."

He continued: "And the gasoline was uncapping borrowing in the mid-2000s."

Based on his background, Hornsby is someone worth listening to. He's a former bond trader who initially applied his analytical skills to the world of student loans to help his girlfriend free herself from swelling medical school debt. Once he dialed in a viable plan for her, his practice started to snowball.

He started blogging about his findings, and soon friends of friends were asking Hornsby for advice. The rest is history.

Today, he's consulted on over $750 million of student loan obligations, so it's safe to say that he knows the ins and outs of the system.

Still, that doesn't mean that his advice for debtors aligns with conventional wisdom. In fact, some of his views are diametrically opposed.

"A lot of people don't need to pay back their debt - and that's not a message you hear a lot on popular personal finance shows," he said. "You mostly hear the 'pay off your debt at all costs' mentality, and that's really bad advice for a lot of people."

Instead of trying to refinance, Hornsby thinks it's appropriate for some individuals to explore the forgiveness-plan route. They may wind up saving themselves thousands by doing so.

Exploring different repayment avenues

It goes without saying that each individual's situation is unique, and that it's best to seek professional help before making any large financial decisions. However, Hornsby thinks it's a good idea to explore different repayment avenues. It all depends on what makes the most financial sense for your situation.

"I tell people not to refinance unless you work in the private sector, and you have an emergency fund, and you can easily afford to pay at least 1% of your balance every month," he said. "So if all three of those things are not true, then refinancing is not for you."

With that being said, he offers up a piece of advice that seems to be overlooked by the majority of student debtors.

"When you graduate, you generally need to sign-up for something called Revised Pay As You Earn (REPAYE), because it can give you a 50% interest subsidy on your interest," he said. "A lot of people don't know that."

While you're repaying your loans, interest accrues - and if you're enrolled in an income based plan like REPAYE it very well may accrue faster than you're repaying it. If that's the case, the government will cover 100% of extra interest for loans that are subsidized, and 50% for loans that are unsubsidized for the first three years. Once that period is over, 50% of remaining interest will be covered.

Other features of a REPAYE plan are payments that are capped at 10% of discretionary income, with the remaining balance forgiven after 20 to 25 years of repayment.

NOW WATCH: How Ocean Spray cranberries go from the bog to your Thanksgiving table