What can you do to get out of debt?
Getting out of student debt on your own is hard, we understand. It involves lots of planning, workarounds and time, depite all this here are a few resources that you can use to help with your debt.
1. Enroll in an Income-Driven Repayment Plan
Under these programs, your monthly payment will be limited to between 10% and 20% of your discretionary income, based on your family size and other factors. Besides the obvious benefit of increased affordability, perhaps the most important aspect is the potential for student loan forgiveness down the line. After a repayment period of 20 or 25 years, your remaining debt balance will be discharged.
2. See If You Qualify for Student Loan Forgiveness
Find out if you qualify for any of the below loan forgiveness criteria, and it could help out immensely with your repayment by removing a portion - or all of - the debt you owe.
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Public Service Loan Forgiveness
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Teacher Loan Forgiveness
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Total and Permanent Disability Discharge
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Closed School Discharge
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Borrower Defense to Repayment
3. Consolidate Multiple Student Loans Into One Payment
Borrowers with multiple federal student loans – including those from different loan servicers – can combine their debt into one loan with a single monthly payment through a Direct Consolidation Loan. Most types of federal student loans are eligible, including subsidized and unsubsidized Direct loans, graduate PLUS loans, parent PLUS loans, Stafford loans and PLUS loans from the Federal Family Education Loan Program.
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4. Refinance Your Student Loans at a Lower Rate
Student loan refinancing is when you take out a new loan from a private lender to repay the balance of one or more student loans. Ideally, you'll want to refinance to a lower interest rate, which can potentially help you pay off debt faster or reduce your monthly payments. Locking in a low rate may also save you hundreds – or sometimes thousands – in interest charges.
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5. File for Bankruptcy
Although the process can be difficult and consequential, it may be possible to discharge your student loan debt in bankruptcy. In most cases, it's easier to get your debt forgiven through bankruptcy if you have private student loans rather than federal student loans.
Filing for bankruptcy due to student loan debt should be seen as a last resort if you've exhausted all of your other repayment options like income-driven repayment, deferment and forbearance. But borrowers who are experiencing undue economic hardship due to high amounts of student loan debt in default may find bankruptcy a viable option.
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A story of success
This success story is about a student who graduated from the University of Michigan with an almost unheard amount of debt - $125,000. It is highly uncommon for students to accumulate such large amounts of debt; however, we added this story with the sole purpose to showcase that is it indeed possible to pay off even such large amounts of debt in reasonable amount of time using the right resources and techniques. Our success story involves Kathlyn, a student who got into her dream college at UMich and was excited for the prospect of spending 4 years studying engineering. By the end of her 4 years at college, she owed $20,000 to the federal government, $105,000 to private student lenders and $4,000 to her college – all amounting to a staggering $125,000.
This meant that the minimum monthly payment for her stood at an astounding $1,500, a hefty amount for a student fresh out of college to grapple with. Given the unfavorable economic situation and job market, this made it all the harder. To make the situation even worse, interest rates hit an average of 8% for all her combined student loans, the worst rate for the last two decades. Straight out of college, she utilized the federal grace period program which gave her a period to accumulate funds and find a job without having to worry about paying her loans – but interest would still accrue. She moved to a new city and managed to get a new job and balance her finance between rent and moving into a new apartment. When all was taxes and expenses were deducted, she was taking home a total of $3,100, which she had to use for rent, expenses and student debt. By prioritizing student debt then rent, followed by her other expenses she managed to consistently meet her minimum payment amount without failure despite having to live frugally for the first year of starting her new career.
The demeaning factor was that despite paying nearly a $1,500 in monthly payments her student debt only would reduce by a few hundred dollars, due to the sheer amount of interest that she was charged, despite this she endured and managed to balance her finances. She then a hit a point where she plateaued, her monthly payment was all going to interests and did not make a dent on her total debt owed. This was when she decided to use her states Loan Forgiveness program, which meant that a certain portion of her loans were forgiven, an amount totaling to about $15,000. This was a huge boost to her moral and shows that the use of resources could be effective and useful in paying off debt successfully. This coupled with managing to halve her interest costs monthly by using a federal government-initiated payment plan meant that she was able to cut into her total student debt costs every month. Kathlyn temporarily halted all other unnecessary expenses, such as 401(K) costs and others to prioritize paying off her debt first. A few years of getting promotions, managing costs and meeting payment demands she managed to reach her goal and completely pay off her student debt despite all the hardships and barriers she faced throughout this time. She stands as a beacon of hope to all students that debt is something that can indeed be overcome, no matter how staggering the amount or circumstances may indeed be.