Earning a college degree is a time-honored tradition, but repaying student loans presents problems for many graduates. According to The Institute for College Access and Success, 69 percent of college seniors had student loans in 2013 with an average balance of $28,400 per borrower. The good news is that student loan forgiveness and other solutions are available. The U.S. Department of Education offers forgiveness of student loan debt under certain circumstances. If your student loans were made through private lenders, you may also be eligible if your loans are backed by the federal government. Just remember if you are not eligible you may be able to refinance your student loan to help save money.
Student Loan Forgiveness Programs: Who's Eligible
Don't book that exotic vacation or buy that new ride just yet. According to the Department of Education, Federal criteria for student loan debt forgiveness or discharge are generally limited to these scenarios:
- Closed school discharge: You may qualify for a full discharge of your student loans if your school closed while you were enrolled or within 120 days after you withdrew.
- Total and Permanent disability: You must provide proof of your disability to qualify. Examples of acceptable documentation include proof of social security disability payments, a certification from a doctor, or if you are a military veteran, you can provide documentation from the VA that verifies your disability and related VA benefits.
- Student's death: Your student loan debt is discharged when you die. Your spouse or other family members can't be held liable for payment.
- Bankruptcy (this is rare): In some cases, federal student loan debt is discharged in a personal bankruptcy, but this is rare. If you're considering filing bankruptcy, ask your attorney about this option.
- False certification of eligibility or identity theft: If your school falsely certified your eligibility, or eligibility was related to identity theft, you may qualify for a discharge of your education loan debt.
- Unpaid refunds: If your school failed to refund tuition after you withdrew from school, you may qualify for a discharge of the amount that should have been refunded to the Department of Education or your private lender.
- Loan forgiveness for certain teachers and public service employees: Candidates for student loan forgiveness under these programs must meet specific eligibility requirements; forgiveness is not available for all teachers and public service employees.
- Perkins Loans: In general, federal Perkins loans may also qualify for forgiveness or discharge under certain circumstances.
If you don't qualify for forgiveness, cancellation, or discharge of your student loan debt, you may qualify for relieve through consolidation, forbearance, or deferment programs that can reduce interest rates and payment amounts and temporarily postpone payments.
Student Loan Consolidation and Refinance Options
Direct Consolidation Loan: Repaying student loans can be complicated by owing multiple loans with differing payment amounts, due dates, and interest rates. A direct consolidation loan provides a solution by lending enough to pay off all of your student loans; you'll have one payment that's typically lower than the sum of all of your individual student loan payments. Federal consolidation loans have no application or prepayment fees, but consolidating student loan debt may remove benefits offered by individual lenders. Federal consolidation loans have few provisions for loan forgiveness, but are a good option for borrowers with limited or poor credit.
Student Loan Refinance: Similar to the federal direct consolidation loan program, refinancing your student loan with a private lender simplifies debt repayment and may also provide lower interest rates and lower your monthly payment. Refinancing requirements and costs vary by lender; it's important to shop and compare student loan refinancing quotes to find your best deal. Check out loan terms as well as rates to find refinance benefits that match your needs and budget.
It's tempting to take the first opportunity offered for student loan debt relief, but the time you invest in researching and shopping for solutions can help you avoid more problems with repaying your student loans. The Consumer Financial Protection Bureau encourages borrowers to understand options available for resolving issues with student loan debt.