Student Loan Debt

Millions of young Americans are weighed down by student loan debt. Many graduates begin their professional lives with the burden of how to pay off their loans. The estimated 1 trillion student loan debt is feared to trigger another recession similar to the 2008 crisis. Struggling students all across the nation are facing issues with loan repayment, high interest rates, and unemployment. In this current scenario, it is difficult to point fingers or blame anyone. Are students to blame for taking out loans? Are institutions to blame for the ever-increasing and unaffordable tuition rates? Or is the government to blame? While these questions will remain unanswered, the federal government is developing programs that will allow students to seek some sort of financial loan relief.

Student Loan Debt Relief Options

There are a number of federal-based programs that help students manage loan repayment and get relief. These programs were designed to lower the student loan debt and help millions of students ease their financial burdens.

Pay as you Earn (PAYE)

This program was passed into law in 2012, and was the first student debt relief program signed by President Obama. It allowed students to pay off a certain percentage of their income as loan repayment for 20-25 years. However, in 2014’s budget proposal, PAYE has been extended, allowing more individuals to qualify and help with student loan payments. Here are the main features:

  • 10% Loan payment cap
  • 20 year repayment period
  • Direct unsubsidized, subsidized, and PLUS loans are eligible

Income Driven Repayment Program (IBR)

This program will allow students to pay off their loan according to their income-level. Generally, 15% of the income is to be paid monthly over a time period (20-25 years). Any outstanding payment after this period will be forgiven. Students who have borrowed loans after 2014 will be liable to pay only 10% of their discretionary income.

Public Service Loan Forgiveness Program (PSLF)

This program will qualify individuals for loan forgiveness of the remaining balance after a certain number of payments. However, only individuals who are working in the public service sector are eligible. Here are a few of the features:

  • Complete monthly payments (minimum 120)
  • Must be working in a public service organization
  • Eligible loans include all loans under the William D. Ford Federal Direct Loan program
  • It is important to note that individuals must make payments under a qualifying repayment plan

Income Contingent Repayment (ICR)

This program will allow low-income students to pay off loans conveniently. The monthly repayment under ICR is adjusted according to the borrower’s income and family size. ICR is only offered by the US Department of Education. Here are the main features:

  • 25 year repayment period (maximum)
  • Remaining debt is forgiven
  • Fixed interest rate

Direct Consolidation Loan

Under this program, students who have taken more than one federal loan can consolidate their loans into one loan. Many students are opting for consolidation programs due to the many benefits and features. These have been outlined below:

  • Multiple payments are reduced to single payment per month
  • Convenience in paying off loans
  • Fixed interest rate
  • Most federal loans are eligible for consolidation excluding the Parent PLUS loan.

Deferment or Forbearance

Students can receive deferment and forbearance under certain circumstances. These options will help students postpone or reduce the monthly payments. Not only does this make loan payment convenient, but also helps them avoid defaulting. Under deferment, interest rates on a student loan are temporarily delayed.The federal government pays the interest for the borrower. Eligible loans include the federal Perkins loan, direct subsidized loan, and federal Stafford loan.

Under a forbearance program, borrowers can stop monthly payments for a certain period of time. There are basically two types of forbearance, discretionary and mandatory. Forbearance is only allowed for individuals who are undergoing a financial crisis or illness.

Teacher Loan Forgiveness Program

This program is designed specifically for teachers. Individuals who are currently working as teachers and are struggling to pay off loans are eligible for this teacher loan forgiveness. Under this program, a combined total of $175,000 can be forgiven on direct subsidized and unsubsidized loans, and federal Stafford loans.

Private Loan forgiveness

There are still millions of students who do not qualify for federal forgiveness programs. Mainly because they have taken a PLUS loan, or have acquired a loan from a private institution. But such student should not lose hope as many private financial institutions are now offering relief programs such as the following:

  • Loan modification programs
  • Loan consolidation programs
  • Loan forgiveness via bankruptcy

Application Process and benefits

The eligibility requirements and application process of the various Student loan debt forgiveness programs may vary. The federal government oversees all such programs and provides information about the application on their official web page. Loan forgiveness and repayment programs are proving to be a suitable solution to handle college loan debt. Not only will this help students manage their finances better, but will also reduce the overall student debt crisis.