Attending an American university can be accompanied by massive student loans and tremendous debt. Your student loan debt weighs heavy on your shoulders. It is a stress that millions of students deal with. You know you should be trying to pay it down faster, but the amount makes your head swim, and you’re not really sure how to tackle it. If you’re one of the 37 million students from American universities the Federal Reserve Bank of New York says is currently carrying student loan debt, there are resources available to help you lower your payments or even discharge the loan completely.
While you are a full-time student, most government loan payments are deferred until graduation. Then there is a grace period (around six months) before the payment requests start. If you decide to go back to school or go to college online, you can defer payments until you finish your degree. If you have a low-income job or are having trouble finding work altogether, you may need to look into deferment or forbearance.
College grads with little or no income can apply for a deferment by contacting their loan servicer under special circumstances. This will depend on the type of loan, but according to the U.S. Department of Education, some of the most common special circumstances include:
- Enrolled in school half-time or less
- Unemployment (up to three years)
- Peace Corps or military service
- Graduate fellowship program
During a deferment, you make no loan payments, and the federal government may pay accruing interest charges during that time.
If you don’t qualify for a loan deferment, you may apply for student loan forbearance. Forbearance allows you to reduce or stop payments on your loan for up to 12 months. Interest continues to accrue on both subsidized and unsubsidized loans during your forbearance period. There are two types of forbearance situations, according to StudentAid.gov:
In a discretionary case, the lender decides whether to grant you forbearance based on you situation, such as financial hardship or illness. In a mandatory case, the lender is required to grant a forbearance based on eligibility.
To apply for a deferment or forbearance, call your student loan servicer for questions on eligibility and to request an application. The representative will ask a few questions concerning your situation:
- Your monthly income
- How many dependents live in your home
- If you receive any state or federally funded assistance
Pay Down the Principal
Consider any extra income you have, such as a tax refund, selling a car, freelance work, etc. If you have debt from a student loan or otherwise, pay that off first before putting money into savings or on a big purchase. The principle of you loan in the total borrowed plus any interest accrued. It is not the final amount you will pay in the long run, but getting this number as low as possible will lower interest and payments. For example, if you receive monthly payments from a structured settlement, consider selling the annuity for a lump sum. You can then use the money to pay down the principal or pay off the entire student loan, which can save you thousands in the long run, depending on your repayment schedule and the interest rate you’re paying.
Consolidate Student Loans
You may qualify for a direct consolidation loan, which brings all your student loans into one account. You simply make one monthly payment. When you consolidate your student loans, you can eliminate variable interest rates and lower your monthly payment. At this point you may choose a 30-year loan repayment option, but you should know that if you lengthen your repayment time frame, you will add interest charges. You may also lose some borrower benefits that may lower interest payments or provide for principle rebates. To qualify for a direct consolidation loan, you must have at least one direct loan or one Federal Family Education Loan (FFEL).
Loan Forgiveness, Cancellation and Discharge
Under certain circumstances, you can qualify for student loan forgiveness, which reduces or eliminates the loan debt. Below you’ll find several criteria by which you may qualify for loan forgiveness. Nearly a quarter of the American workforce qualifies for loan forgiveness under the public service employment rule. Few take advantage of the program, due to lack of knowledge. Speak to your loan holder to understand all the options available for loan forgiveness.
- Total and permanent disability (TPD)
- Unpaid refund
- Unauthorized or false student eligibility certification
- Public service employment
- Service as a teacher
- Perkins loan cancellation or discharge
A bankruptcy discharge happens rarely as the courts do not discharge federally funded loans, child support and other debt repayment ordered by the courts.