My Student Loan Debt is Crippling – What Can I Do?

Having a college degree is more important than ever, as the more education you have, the more likely you are to find a good paying job. However, sometimes it’s just not possible for you or your parents to totally finance your education. Once grants and other forms of free student aid are exhausted, many people turn to student loans to get them through college. So you feel buried by your student loan debt? You’re not alone.

Americans currently owe more than $1.3 trillion in student loan debt with 44 million people having outstanding student loans. And students are having a hard time repaying their loans – of the 44 million with outstanding loans, 11% of them are delinquent. The average balance carried by graduating students is $33,000. (For more info on student loans, Creditrepair.com also did a 2015 study on student loan debt across the country.)

The first thing you need to do when attempting to tackle your student loan debt to is review the details of your loan(s). What is the interest rate and length of time left to pay on the loan(s)? Are they private or federal loans? How you handle repayment is quite different depending on which type of loan you are holding.

Federal Loans

Federal loans come in 3 basic types:

• Direct Loans
  • Direct Subsidized Loans – loans made to undergraduates who demonstrate financial need.
  • Direct Unsubsidized Loans – loans made to under graduates or graduates with no requirement to show financial need.
  • Direct Plus Loans are loans made to graduate or parents of under graduates.
  • Direct Consolidation Loans – loans you can use to combine existing federal loans into one loan with one payment.
• Federal Family Education Loans (FFEL) – federal student loans granted before January 05, 2010. They were either Stafford Loans, PLUS loans, (subsidized or unsubsidized). These loans can be converted into a Direct Consolidation Loan.
• Perkins Loans – The Perkins loans program is for undergraduates and graduate students with exceptional financial need. The school is the lender under this program.

Repayment Programs for Those In Distress

For federal borrowers that are having a hard time repaying their loans, there are a few types of loan repayment programs.

• Income Based Payment (IBR) and
• Pay As You Earn (PAYE). After proving partial financial hardship, their payment is capped at 10% of their income that exceeds the 150 percent federal poverty line.
• Extended Repayment Plan. Under the Extended Repayment plan, stretching out the loan repayment term (to 30 years) can lower payments. In general, the other types of repayment programs cap monthly payments to 10 to 20% of your discretionary income. After 20 to 25 years, any remaining student loan debt is discharged (though borrowers must pay taxes on the forgiven debt.
• Income Contingent Plan (ICR) unlike other plans, your income doesn’t affect your qualification for income-contingent repayment. Only borrowers with federal direct loans can sign up, or you can combine other loans into a federal direct consolidation loan. Your payment is capped at 20% of discretionary income, or the amount you would pay if the loan was extended to 12 years, whichever is lower.
• Revised Pay as You Earn (REPAYE). Payments are capped at 10 percent of your discretionary income minus 150 percent of the state poverty levels, just like the PAYE program. However, with this loan, the remainder of the debt leftover at the 20 year mark is forgiven.

See the edu.gov website for details on these programs.

Forgiveness Programs

There are various programs that offer loan forgiveness for federal loans.

• Public Service Loan Forgiveness is a federal program that forgives student debt after 10 years of qualifying payments. To take advantage of the Public Service Loan Forgiveness program, you must work in a non-profit field, public service, or government job. Schoolteachers qualify, as do religious organizations (as long as your job is in public service and isn’t directly involved with worship services or proselytizing). FFEL loans qualify for this program as long as you’ve converted them to a Direct Consolidation Loan.
• Teachers also qualify for Perkins loan cancellation. In order to qualify for this program, you must teach in a school serving students from low-income families, special education teaching or a teacher in a field determined to have a shortage of qualified teachers.
• You can also have your loans forgiven or discharged if you become disabled, or the school in which you started your education closes, especially if it was a trade school.

Deferment or Forbearance

While you’re still in school, your loans have deferred status, meaning that no payment is due until after you leave school. Forbearance happens when you encounter one of life’s bumps in the road: financial hardship, illness or job loss – and you can stop making payments for up to 12 months upon lender approval. For a complete list of situations that qualify, check out CreditRepair.com’s article on avoiding drowning in student loan debt.

Private Loans

Private student loans are any loan that are not federal student loans and are usually originated in a bank or a school. They differ from federal student loans in important ways:

• Private student loans are often more expensive than federal loans, and often come with adjustable rate terms.
• Private student loans have a statute of limitations if you default, unlike federal loans.
• Private loans are still difficult to include in a bankruptcy, but it’s not impossible to do so. For instance, if the school from which the loan came was operating fraudulently, like in the case of ITT Technical Institute, some people were able to include them in personal bankruptcies. In addition, sometimes student loans can be discharged in bankruptcy due to hardship.
• There is no forgiveness program for private student loans.

Debt consolidation

If you are having a tough time repaying your private student loans, you can try refinancing them by applying for a consolidation loan with a lender who handles them. This could lower your interest rates, convert a variable to a fixed rate, or stretch out the payments. For a partial list of lenders willing to work with you on your student loans, check out this link on Nerd Wallet.

Student Loan Forgiveness

In general, there are no student loan forgiveness programs for private student loans. In some cases, though, if you become disabled, you could get the lender to agree to forgive the debt. You will be paying taxes, though, on all the forgiven debt.

Deferment or Forbearance

Just like with federal loans, lenders can agree to put your loans into deferment if you’re heading back to school or entering the military. Even though you’re making no payments, though, interest is still accruing. This is different from a subsidized federal loan, where the government pays the interest while a loan is in deferment. Forbearance can be granted by a lender if you’re having a temporary financial set back and need some breathing room in order to continue to make payments. Just like deferment, interest continues to accrue in forbearance, so only use this when absolutely necessary.

Whether Federal or Private, You Can Work Out Your Own Personal Repayment Plan

Just as many people have been successful paying off credit card debt without resorting to a debt consolidation company or consumer credit counseling, you can work out a budget that has as its mission statement the goal of paying off or down your student loans. Work on finding a little extra money each month and put that money towards your student loans. Pay off the ones with the highest interest rate first. Many people have had success in paying off their student loans in a few short years.

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