Student loan debt defaults are at an all time high and are only going higher. In 2010 the default rate was at a staggering 7%, one year later...8.%. These astronomical default rates will only go higher as the economy stagnates and people struggle to make the payments. But still there are others who are making the payments and who are getting out of student loan debt.
Federal or Private? Pay off your private student loans first. Interest rates, even though low now, may rise in the future. You also will not have the protections offered you through federal student loan programs. You must keep your federal student loans current though. Once You’ve paid off the private loans, consider adding that payment amount to your federal loans. This will not only pay the loans off sooner but will save you money on interest.
Can’t make the payments? If you are struggling to make the payments on your student loans, consider having the loan terms extended. This will lower your monthly payment but bear in mind, you will probably more than double the interest you will pay. Also, before you default, keep in mind that there are no statutes of limitations on federal student loan debt. Also, there is no bankruptcy protection. The creditor can and will continue to collect the debt long after you have defaulted.
Income based repayment plans There are three repayment plans that are tied to your income: income-contingent, income-sensitive and income-based. One of these plans may be a viable option for you if you are having trouble paying your loans. Some of the plans may take your payment down to $0.
Student loan forgiveness options There are several ways to have your federal student loans forgiven. If you are in one of the income-based repayment plans and you meet certain income stipulations, your debt may be forgiven after 25 years if you stay current on your payments. Your debt may be forgiven in as little as 10 years if your are in one of the income-based repayment plans work in certain public service jobs, including teaching, health, military and public safety jobs.
The military offers plans for student loan debt forgiveness as well as certain high-need occupations such as doctors and nurses. Teachers may also have options for student loan forgiveness. Forbearance may be an option. This will allow you to stop making payments for a specified amount of time. The interest will continue to accrue however. If you are in financial difficulty, you can ask for a forbearance to buy you time to get your financial situation under control.
Bankruptcy won’t help You will not be able to have your federal student loans forgiven through bankruptcy. Your only options are to pay the loan (whether modified, forgiven, or with regular payments) and default. It is not recommended you default on your student loan debt. In summary, the best option is to own up to the fact that you owe the debt and make every effort to make the payments. If you find you can’t, contact the student loan guarantor immediately