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.