In their pursuit of higher education, Americans have racked up more than $1 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. Money Talks News finance expert Stacy Johnson is ready to help you navigate the system and avoid scams.
Watch the video below and then keep scrolling for more information.
Government options for reducing student loans
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.
Despite conventional wisdom to the contrary, the government isn’t entirely heartless. It does offer ways to defer, consolidate or even forgive certain student loans. The catch is you have to 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 slightly, 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.
Fifteen years ago when I was pregnant with our oldest child and money was tight, getting a forbearance was as simple as calling and explaining the situation. Although I can’t promise that of your request, you may be surprised at how easy it is to take a break from your payments.
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 on 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.
Student loan forgiveness programs. Finally, you may be able to have your loan forgiven if you’re a teacher or work in a public service field. However, you need to have the right loans to make this work.
- Public Service Loan Forgiveness. 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.
- Stafford Loan Forgiveness Program for Teachers. The eligibility requirements for this program are a little more complex, but it boils down to you need to teach full time in a qualifying low-income school for five consecutive years. A similar forgiveness program is offered to those with Perkins Loans.
States might offer their own loan forgiveness programs to teachers, doctors and other professionals as well. You can learn more about federal forgiveness programs and government options on the U.S. Department of Education website. For other programs, check with your state higher education department or agency.
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 or completing a form.
Still, some people find the process overwhelming and need a helping hand. Unfortunately, many for-profit companies are willing to provide it for an exorbitant price. They 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.
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.