Student loan debt in the U.S. has reached a staggering $1.35 trillion dollars. Almost 12 percent of the outstanding loans are in default and more than 60 percent of college graduates have some form of student loan debt. Click here for more information on student loans by state.
Many graduates leave school with more than $100,000 of student loan debt. The higher the degree, the more student loan debt that’s probably incurred. Some graduates work two, three, or even four jobs to try to meet their student loan obligation, which can amount to a couple thousand dollars every month. Just as with any loan payment, late payments can adversely affect a student’s credit rating. As with a mortgage, making an extra payment each year can substantially lower the length of time needed to repay the loan and can save many thousands of dollars in interest.
Options for Repayment
For those who can’t make the regular payments, much less an extra one, and who need student loan help, several options are available, but bankruptcy is not one of them. Student loans are not dischargeable through bankruptcy unless through a court order.
Standard options for repayment include:
- Classic income based repayment
- 2014 income based repayment
- Pay as you earn
- Income-contingent repayment
Click here for details on each of these repayment plans.
Other options for repayment are:
- Loan deferment
- Loan consolidation
- Income based payments
- Loan cancellation
A loan deferment allows the student to delay his or her payments for a specific period. Interest will continue to accrue but no payment will be due. This applies specifically to those who are still in school but the program can also be used after graduation.
Loan forbearance is similar to a loan deferment but is easier to obtain. Forbearance can be an option when the student has become ill or expects to be unable to repay the loans within the original timeframe of the loan.
Those who can qualify for a private loan might consider loan consolidation. Depending on the individual circumstances, loan consolidation might provide a better interest rate, better terms, and so forth, saving thousands of dollars in interest over the course of the loan.
Income based payments will adjust the payment to the borrower’s income and don’t adversely affect the credit rating although the borrower will pay more in interest. Typically, the payments are based on 10 to 20 percent of the borrower’s discretionary income and the term is extended up to 25 years.
A loan cancellation is more difficult to obtain and is usually the result of health, economic hardship, or other unforeseen circumstance, including death of the borrower. Those who are in the military, law enforcement, health care, or certain other occupations may also qualify for a loan cancellation. For more detailed information on these options, click here.
Loan Payoff Program
The Obama administration has enacted programs to facilitate student loan repayment. Under current law, those students who have enrolled in some types of the repayment options available would have their loan balances forgiven at the end of the loan term if there was an unpaid balance remaining. Additional information can be found here.
No matter the size of the student loan you have, help is available so don’t despair.