The White Horse of Student Loan Relief

White horse of student debt relief

Are you burdened by student loan debt? If so, have you looked into ways to lower, extend, or end your student loan payments? I’m guessing the answer is probably “Yes.” After all, when you are feeling the pinch, you want to find solutions that can help you.

But it can be hard to understand how all these various programs work and whether you’re eligible for them. We hear about these programs from time to time; on TV, in a news article, perhaps even from someone we know. Different programs apply to different situations. So what to do?

In this post, I’ll explain the most common and most powerful programs for those with federal student loans. Unfortunately, the terms of private loans vary greatly, so it’s impossible to lump them together under one set of rules (you can read more about the difference between the two).

It’s a seemingly small but actually very important distinction. The truth is, if you’re carrying both federal and private student loans, the federal programs do not take into account your outstanding private student debt.

That means any calculations for the programs below are based only on your federal loans. Private loan debt is essentially invisible to these relief programs, which in my opinion is unfair given that students often carry a larger amount of private debt than federal (but that’s an argument for another post).

That said, if you’re seeking relief, here are your options:

Temporary Deferment and Forbearance

There are different types of deferments and forbearances. There’s the kind you can choose, and the kind you are granted. You are be eligible for deferment or forbearance if:

  • You become unemployed and are receiving unemployment.

  • You are active military deployed during war or national emergency.

  • You experience economic hardship, defined by the Department of Education as 150 percent of the poverty line (calculations here).

  • The total amount of your federal loan payments exceeds 20 percent or more of your monthly gross income.

You may be granted deferment or forbearance if:

  • You experience other types of financial hardship.

  • You become seriously ill.

Income-Based Repayment

Most federal loans (and even many private loans) offer some form of graduated repayment; usually this involves consolidation and a payment schedule with payments growing over time, and is easy to opt into. Income-based repayment (IBR) is different. You must qualify for a partial financial hardship, which means the amount you’d pay over 10 years on a standard payment plan is higher than the amount you’d pay through IBR. (Confused? There’s a calculator here.)

Essentially, the program takes your income into consideration (even as it changes over time) and stretches payments over 25 years — with the guarantee that you won’t pay more than you’d pay on the standard 10-year repayment plan. After 25 years, any remaining balance is forgiven.

Forgiveness/Cancellation/Dismissal

As you might imagine, this is the toughest program to qualify for. Different federal loans are eligible for different levels of relief; use the Department of Education’s helpful chart for reference. Generally, you can become eligible for complete dismissal in the following circumstances:

  • Disability or death.

  • A random variety of school-related technicalities: your school closes before you graduate; false certifications of eligibility; other technicalities.

  • You are a teacher in a low-income school for five consecutive years. Forgiveness maxes out at $17,500 for highly-qualified high school math and science teachers and highly-qualified special education teachers at any level.

  • You are a public service employee who has made at least 120 payments (that’s 10 years’ worth); the remaining balance may be forgiven.

Bankruptcy

Generally, student loans are not allowed to be included in bankruptcy except in cases of extreme hardship — which is quite rarely granted. This is a controversial part of current law, but there are no signs that it will change anytime soon. To read about the specific requirements for discharge take a look at the Department of Education site.

Most Importantly

Keep in mind that none of these relief options kick in automatically. You must apply for all of these programs and continue making monthly payments until your relief is approved. It’s not an easy process, but you can get through it! If you have more questions feel free to post a comment below and we’ll do our best to answer it. You can also check out our Student Loan Debt resource center.

Image credit: Wolfgang Staudt

Have you tried ReadyForZero yet? It's a free online tool for paying off debt.

Try it now

Receive updates:      
You can always unsubscribe by clicking on the link at the bottom of each e-mail.