Pursuing higher education is a noble ambition, but it can come at a high cost. The rising cost of tuition fees, along with the increasing cost of living expenses, has resulted in a surge in student loan debt. As per the Federal Reserve, the total amount of student loan debt in the United States in the first quarter of 2021 was $1.73 trillion. With such a huge amount of debt, it can be overwhelming for graduates to manage their finances. In this article, we will discuss various debt relief options available to students struggling to repay their student loans.
Refinancing is an option that can enable debt-stricken students to lower their interest rates and monthly payments. Refinancing involves taking out a new loan with a private lender to pay off the existing loan. This option is only available for private student loans, which typically have higher interest rates than federal loans. If your credit score has improved since taking out your initial loan, you may qualify for a lower interest rate for your refinanced loan.
2. Income-Driven Repayment Plans
Income-driven repayment plans are a lifesaver for students with low income levels. The federal government offers four income-driven repayment plans – Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). These plans calculate an affordable monthly payment based on the borrower’s income, family size, and loan balance. After 20-25 years of timely payments, any remaining balance is forgiven.
3. Public Service Loan Forgiveness
Public Service Loan Forgiveness (PSLF) is a federal program that offers student loan forgiveness to borrowers who work in public service jobs, such as government or non-profit organizations. If you work for a qualifying employer and make 120 qualifying payments while on an income-driven repayment plan, the remaining balance is forgiven. This option is only available for borrowers with Federal Direct Loans.
4. Deferment and Forbearance
Deferment and forbearance are temporary suspension options available for students facing financial difficulties. Deferment is available for federal loans, while forbearance is available for both federal and private loans. Deferment allows the borrower to pause their payments without accruing interest, while forbearance allows the borrower to pause their payments but interest continues to accrue. These options should only be used as a last resort since the interest adds up, and the borrower ends up paying more in the long run.
Bankruptcy is not an easy way out of student loan debt. It is a complicated legal process that involves proving undue hardship to discharge the loan. To qualify for bankruptcy, the borrower must prove that they cannot maintain a minimal standard of living while repaying the loan. This is an extreme option and should only be considered after consulting a bankruptcy attorney.
In conclusion, there are several debt relief options available to students struggling to pay back their student loans. Refinancing, income-driven repayment plans, public service loan forgiveness, deferment, and forbearance are some of the options that can help borrowers manage their finances. It is essential to research and compare the different options available before choosing one that best fits your financial situation.