Student loan debt is said to be the next major financial crisis the country will face. Student loan debt now exceeds personal credit card debt. However, unlike credit card debt, student loans are not eligible to be discharged in a bankruptcy proceeding. That means that it is imperative that borrowers stay current on their loans to avoid collection activities which could include wage garnishment. In addition, borrowers who have federally insured loans in default could be subject losing their income tax refunds or have their Social Security garnished.
There is good news, however. There are several options out there to help those who would struggle to make their payments. Be advised, the list below are options for those with federally insured loans like Stafford, Perkins, PLUS or Direct loans. These options may not be available with private loans. In any case, contact your lender to see what options you may qualify for.
1. Deferment – This option temporarily suspends your monthly payments. Deferments are often granted for those who are currently in school at least half-time or for those who are experiencing a financial difficulty.
2. Forbearance – Similar to a deferment, this option can temporarily suspend or reduce your monthly payments or extend the time to make your payment. This is often granted when a borrower does not qualify for a deferment.
3. Loan Consolidation – Consolidation allows a borrower to combine their loans into a single loan. This makes it more convenient as you only have one bill to pay each month. Also, your overall monthly payment may be lower. In addition, borrowers who consolidate their loans under the direct loan program can be eligible for a .25% reduction in interest rate by signing up for the automatic payment program.
4. Alternative Repayment Plans – There are several repayment plans available besides the standard 10 year plan. There are extended repayment plans of 25 or 30 years, graduated plans, and income based plans. These plans will help to reduce the monthly payment, but may also increase the length of time to fully repay the loans.
5. Loan forgiveness – There are programs available where your federal student loans can be forgiven for certain kinds of service. There are programs for those who volunteer for the Peace Corp, serve in the military, teach in low-income areas, practice medicine or nursing in under-served areas, or work for the government or non-profit organizations. The eligibility, requirements and amount of forgiveness varies. Contact your loan servicer for more information on available programs.
Lastly, for those who are already in default on your loans, don’t despair! Your loans can be rehabilitated and brought back into good standing. You must contact your servicer immediately to find out what you must do to get back on track, but they can help you. Most servicers will bend over backward to help you stay in good standing on your loans or to get you back to good standing, so don’t be afraid to call them and seek help.
Post by Jesse Tran, Financial Counselor
The Village Financial Resource Center