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Student Loan Debt Relief

Elizabeth Johnson

Financial Advisor
Updated: 12/2017

College loan and student loan debts are the fastest growing type of debt in America. Millions of people have taken out student loans, recognizing that a college degree is the best way to get a better job. However, economic difficulties and the growing cost of college have put many borrowers in a precarious situation. Many people are struggling to pay back their student loans, but can’t seem to get ahead. We’ve put together this guide to help you understand some different options available to those looking for student loan debt relief.

Student Loan Repayment Options

The first, and most common, type of debt relief involves different ways of repaying your loan. Federal rules and regulations stipulate that federally backed student loans must offer different types of repayment options. These options can help reduce the amount you pay each month, and can make it possible to get back on track with your student loan debts.

Standard Repayment

Standard repayment isn’t really a debt relief option. This is the normal system of repayment where you repay your loans according to the original terms of the loans. Many borrowers who are enrolled in a standard repayment option don’t realize there are better options available to them.

Graduated Repayment

A graduated repayment system is the first step towards managing your student loans. A graduated repayment plan means that your payments start off small, but increase every two years. Therefore, you’ll have time to find a job that will allow you to cover your loans before making larger payments.

Income Contingent Repayment

An income contingent repayment plan, or ICR, borrowers make payments according to a set of factors. These factors include income, your family, the balance on the loan, and the interest rate. Payments can be as low as $0.00 for ICR borrowers.

Income-Based Repayment

In an income-based repayment plan your student loan payment is determined by your income and family situation. This differs from an income contingent repayment plan in that the loan balance and interest rate are not factored in to the bill. Students on an IBR are expected to pay 15% of their discretionary income to their lenders. These payments can also be lowered to $0.00

Pay As You Earn

The Pay As You Earn, or PAYE plan normally has lower monthly payments than the other repayment options. It is based on your income, but rather than the 15% you’re expected to pay with the IBR, you’re only required to put 10% of your discretionary income toward your student loans. This repayment plan is the most difficult to qualify for, but it too can reduce your payment to $0.00

Interest Forgiveness

One of the most helpful options for student loan borrowers is the interest forgiveness program. This program is open to those who took out a subsidized direct loan from the federal government. Most student loans fall into this category. Even if your loan is serviced by another company, like Great Lakes, Navient, or American Education Systems, you still might have a direct subsidized student loan.

The interest forgiveness program means that your interest is not capitalized on your student loan for the first three years of repayment. As a result, student borrowers can save thousands of dollars while keeping their loan balances lower than they otherwise would be. This makes interest forgiveness an excellent option for student borrowers, especially recent graduates who are having a hard time finding a job.

End of Term Loan Forgiveness

Another benefit of recent federal laws concerning student loans is that those in an income contingent, income based, or pay as you earn repayment plan can have their loan forgiven when the loan’s initial term ends, even if they still have an outstanding balance. Most student loans have a term from 20-25 years, depending on the amount that was borrowed and what repayment plan you signed up for.

It’s important to note that there are qualifications and limits for this option. Borrowers are not eligible if they have been seriously late or defaulted on any of their student loans. Moreover, the amount that can be forgiven depends on factors like how much you earned and how your earnings changed over the course of the loan’s initial term.

Public Service Loan Forgiveness

In an effort to increase involvement in public and community service, various governmental and private interests have established loan forgiveness options. To qualify for these programs you must work in the public sector and be in an IBR, ICR or PAYE repayment plan. The advantage of these programs is that your loan can be forgiven after a much shorter time than the end of term loan forgiveness option. Typically, borrowers can have their loan forgiven after 120 payments, or 10 years. This stands in stark contrast to the 20-25 years that the end of term loan forgiveness plan uses.

Teacher & Disability Forgiveness

These aren’t the only programs that provide options for student loan forgiveness. There are special programs for teachers to have their student loans forgiven. One example of these programs is Teach for America. People who enroll in this program agree to teach for a certain number of years at an at-risk school. In addition to the standard job compensation, the program will waive all or most of your student loan balance once you’ve completed your contract with the school.

Additionally, you can get loan forgiveness if you’ve become disabled since taking out your loan. This process is known as Total and Permanent Disability Discharge. Your disability must prevent you from working in the field of your selected degree. For example, if you had studied to be an author, but lost a hand in an accident, then your student loans might be forgiven.

As you can see, there are lots of ways to deal with student loans. Make sure that you’re operating on a payment plan that helps you, and be sure to ask your student loan servicer what options are available to you. It’s always better to talk to the loan servicer if you get into trouble than to default or miss loan payments. Use these helpful programs to move past your student loans and start building a life.