In pursuit of higher education, Americans have racked up nearly $1.3 trillion in student loan debt. While some may debate whether this amount represents a crisis, it may certainly be a problem for you personally if you have loans you can’t pay off.
Not paying off your loans simply isn’t an option. However, there are ways to reduce your payments or even wipe out your debt, and the federal government and the states are adding new ways to help every year.
Possibly before the end of this year, the Consumer Financial Protection Bureau will finalize its new program called the Payback Playbook, which should help give borrowers a clearer idea of how their loans work and their repayment options. The bureau also offers a handy guide to repaying student debt. There are a number of existing programs that can offer help.
Government options for reducing student loan debt
Before we talk about the private companies professing to help you wipe out student loan debt, let’s start with the official debt relief options offered by the government.
The government does offer ways to defer, consolidate or even forgive certain student loans. The catch is you must have loans through the government — private loans aren’t eligible — and you may have to commit yourself to a career in public service.
Here’s what you can get through the government:
Deferment or forbearance: If you’re having trouble making payments, your first course of action should be to contact your loan servicer to ask for a deferment or forbearance. While the details differ somewhat, both work by suspending your payments for a period of time.
Deferments can last longer, and the government may even pay your interest during that time. However, you typically need to be unemployed, in the military or in school to get one. Forbearances can be mandatory or discretionary, and discretionary forbearances include the catch-all category of “financial hardship” as a reason for eligibility.
Loan consolidation: Another option to reduce payments may be to consolidate your loans. If you have multiple government loans, you can apply, at no cost, for a consolidation loan. This turns your multiple loans and monthly payments into one loan and one (hopefully lower) payment amount.
However, be aware that while selecting a longer repayment term may lower your monthly payments, it could also increase the overall amount you’re paying in interest over the life of your student loans.
Income-based repayment plans: The standard government repayment plan is 10 years, but that certainly isn’t your only option. Other repayment plans go as long as 20, 25 or, in the case of consolidated loans, 30 years.
There are also several income-based repayment options:
- Income-Based Repayment Plan
- Pay as You Earn Repayment Plan
- Income-Contingent Repayment Plan
- Income-Sensitive Repayment Plan
These plans all have monthly payments tied to your income and can be ideal if you find yourself stuck in a low-wage job. For some programs, you may need a partial hardship to qualify, but after 20 to 25 years of repayment, any remaining debt is forgiven.
The new REPAYE program (the acronym stands for Revised Pay as You Earn Plan) falls here. While the initial Pay as You Earn program had only been for recent borrowers, the revised version, which opened Dec. 17, 2015, is open to borrowers regardless of when they took out their loans. The U.S. Department of Education estimates it will allow an additional 5 million people to qualify for assistance.
Public Service Loan Forgiveness Program: Only those with Direct Loans are eligible for this program, which forgives any remaining debt after 10 years of public service. To qualify, individuals must work for a government or qualifying nonprofit agency and make 120 full and on-time student loan payments while employed in the public service sector. (Direct Loans are part of the largest federal loan program under which the U.S. Department of Education is the lender.)
Stafford Loan Forgiveness Program for Teachers: The eligibility requirements for this program are a little more complex, but the main requirement is that you teach full time in a qualifying low-income school for five consecutive years. A similar forgiveness program is offered to those with Perkins Loans.
State-run programs: States might offer their own loan forgiveness programs to teachers, doctors and other professionals. You can learn more about federal forgiveness programs and government options on the U.S. Department of Education website.
Some states, such as Minnesota and New York, have recently started programs to help their residents with student loans. Check with your state’s Department of Education to see if it offers a similar program.
Using a third-party company
You can apply for all of the above programs yourself. It costs nothing and may be as simple as making a call, sending an email or completing a form.
Still, some people find the process overwhelming and need a helping hand. While there are many for-profit companies willing to provide assistance, they sometimes do so for an exorbitant price. These companies may charge hundreds of dollars to fill out the same simple forms you could complete and submit for free. Some may outright lie, and at least one state has sued two companies for fraud related to student loan consolidation.
If you do feel so overwhelmed that it is worth it to pay a third-party to manage your student loan debt, be careful about which company you use. Check with the Better Business Bureau and search for online reviews. Above all, be wary of any company insisting you should stop paying your loans while it negotiates your debt. That is a surefire way to default on your loans and, trust us, you don’t want to go there.
Third-party companies may also claim to help with private lenders. Again, there is really nothing they can do that you can’t do yourself — namely, refinance or try to negotiate a forbearance. Private loans offer little flexibility, which is why, if you haven’t taken out any loans yet, we recommend you stick to the federal loan programs.
You can be matched with reputable third-party companies we recommend by visiting the MTN Student Loans Solution Center.
Have you tried to reduce your student loan payments? What did you try and how did it work? Share your experience in the comments below or on our Facebook page.
Ari Cetron contributed to this post.