How To Get Rid Of Student Loan Payments
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Choose The Right Repayment Program
Once youve figured out which repayment assistance programs might best suit your needs, youll need to decide how those programs can work together.
Lets say, for instance, that your states program will pay off $15,000 of your student loans over three years, leaving you with a $50,000 balance. Talk to the program administrators and experts at the Department of Education to determine if the remaining $50,000 balance is eligible for the federal forgiveness program.
If youre aiming for forgiveness, the goal should be to pay as little as possible towards your student loan balances during the 10-year period. Youll need to make regular monthly payments for the amount shown on your bill. But the right repayment program might significantly lower that amount.
For federal student loans, there are several income-driven plans that will set your monthly payment based on your income. Each plan accounts for your income and family size, but each will give you a slightly different monthly payment. When youre aiming for student loan forgiveness after ten years, choose the plan with the smallest repayment amount over that ten-year period.
Here are the basics of the four income-driven repayment plans:
|20 percent of your discretionary income What you would pay on a fixed 12-year repayment plan|
Resource: How to Consolidate Your Student Loans
The Best Student Loan Repayment Plan If You Have Limited Cash
If you have federal loans and a limited budget, then the best solutions are hardship-based repayment plans. These plans set the monthly payments as a percentage of your Adjusted Gross Income . They also take your family size into account. So, the lower your income and more dependents you have, the less you have to pay.
The most affordable plan is Pay as You Earn . For the average borrower, the monthly payments usually equal to about 10% of your income. However, if you live below the federal poverty line for your state, your payments can drop to zero. You even get credited for making qualified payments during your hardship period. The payments only increase one your situation improves. So, if you face extreme hardship, Pay as You Earn is the way to go.
There are also two other programs that work on a hardship-based system:
Also, keep in mind that you must enroll in one of these hardship-based programs if you want to qualify for federal loan forgiveness.
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Q Who Is Doing All This Borrowing For College
A. About 75% of student loan borrowers took loans to go to two- or four-year colleges they account for about half of all student loan debt outstanding. The remaining 25% of borrowers went to graduate school they account for the other half of the debt outstanding.
Most undergrads finish college with little or modest debt: About 30% of undergrads graduate with no debt and about 25% with less than $20,000. Despite horror stories about college grads with six-figure debt loads,only 6% of borrowers owe more than $100,000and they owe about one-third of all the student debt. The government limits federal borrowing by undergrads to $31,000 and $57,500 . Those who owe more than that almost always have borrowed for graduate school.
Where onegoes to school makes a big difference. Among public four-year schools, 12% ofbachelors degree graduates owe more than $40,000. Among private non-profitfour-year schools, its 20%. But among those who went to for-profit schools,nearly half have loans exceeding $40,000.
Among two-year schools, about two-thirds of community college students graduate without any debt. Among for-profit schools, only 17% graduate without debt .
How To Get Rid Of Student Loans
Student loan discharge isnt the only way to get rid of your student loans. There are also ways to get the government to forgive your student loan debt.
Student loan discharge and forgiveness are very similar. Both will eliminate your loan balance, but there are a few distinctions between them.
Where student loan discharge usually occurs based on the borrower being unable to repay the debt, or having taken on the debt due to fraud, student loan forgiveness occurs based on the borrowers occupation.
Students seeking loan forgiveness or discharge both have to submit applications for forgiveness or discharge. The government may approve or deny the application based on the students situation and eligibility.
The IRS generally treats cancelled debt as taxable income to the borrower. However, the American Rescue Plan Act of 2021 includes a provision that makes all student loan forgiveness tax-free.
A good way to differentiate between the two is that student loan forgiveness is something that borrowers can work toward while student loan discharge is something that borrowers usually become eligible for based on the actions of others.
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When Could Forgiveness Happen
If Biden decides to go ahead and forgive the loans through executive action, in theory borrowers could see their balances reduced or eliminated pretty quickly.
But such a move may be met by court challenges, which could lead to delays, experts say.
If the White House opts to leave student loan forgiveness to Congress, Democrats may try to use the budget reconciliation process, which unfolds in the fall, to get it done.
That avenue allows them to pass legislation with a simple majority, which is all they have. Other bills typically must garner 60 votes to advance, thanks to Senate procedural rules. Republicans are mostly hostile toward the idea of a student debt jubilee.
The Navient Discharge Program
Navient is quite possibly the biggest student loan servicing company on the planet, and is definitely under fire from the Federal Government, the Consumer Financial Protection Bureau, and several States Attorneys General, who are all suing the company for systematically and illegally failing borrowers at every stage of repayment.
That is a direct quote from the Consumer Financial Protection Bureau, without any exaggeration or emphasis added by me, so you can be pretty sure that Navient is not only in serious trouble, but also potentially about the be the target of the biggest student loan forgiveness programs ever seen.
Theres truly no telling how big the results of the CFPBs lawsuit against Navient could be, but Im almost certain that everyone with loans will get some kind of financial relief, so youll definitely want to track this development closely if youve got loans being serviced by them.
For specifics on the lawsuits Navient is facing, the things theyve been accused of doing, and the possibility of getting your loans discharged via Borrowers Defense to Repayment, please be sure to visit my page about the Navient Student Loan Forgiveness Program.
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Most People Can’t Eliminate Student Loan Debtbut Many Can Get Better Payment Plans
By Kathleen Michon, Attorney
Student Loan Relief Due to the COVID-19 Crisis
Most federal student loan payments are on hold, and interest is waived,during the COVID-19 national emergency. Collection actions, wage garnishments, and Treasury offsets, like tax refund offsets and Social Security intercepts, for defaulted federal student loans are also paused during this time.
Also, the American Rescue Plan Act of 2021, which President Joe Biden signed into law on March 11, 2021, includes a provision exempting all student loan forgiveness after December 31, 2020, and before January 1, 2026, from federal taxation. Federal laws generally treat any forgiven student loan debt as a taxable event for the borrower unless they were forgiven for specific reasons, like the death or disability of the borrower . The American Rescue Plan Act makes student debt forgiveness tax-free until January 1, 2026. The tax exemption under this law applies to direct federal student loans, Federal Family Education Loans , and private student loans.
Of the millions of Americans who struggle to pay their federal student loans, many want to know: Can I reduce or eliminate my student loan debt? In very limited circumstances, it’s possible to get rid of student loan debt. But most people won’t be able to wipe out some or all of their loans.
Below is an overview of your options if you’re struggling to pay your student loans.
How Can You Become Eligible
To make sure youre eligible for PSLF, submit the Employment Certification for Public Service Loan Forgiveness form. The program requires this form for every year of service, so submitting it on an annual basis will help ensure youre on track for PSLF.
Another important step is switching to an income-driven repayment plan. Youll lower your monthly payments while extending your term to 20 or 25 years. If you stay on the standard plan, you wont have any balance left to forgive after 10 years of payments.
Finally, consider consolidating your student loans into a direct consolidation loan. This step is helpful if you have Perkins or FFEL loans. Plus, it simplifies your monthly payments, so youll only have one loan to pay each month. You can estimate your possible forgiveness through our PSLF calculator.
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Military Personnel Student Loan Forgiveness Programs
Anyone serving in the Military has no reason to fear student loan debt, because Military Personnel get access to some of the absolute best student loan forgiveness benefits around.
There are a ton of different Military Education Benefits Programs floating around these days, from the all-encompassing and new Forever GI Bill, to the Yellow Ribbon Program, Military Tuition Assistance Programs, and even Military Spouse Benefits Programs, but the most powerful of them all would have to be the Militarys College Loan Repayment Program, abbreviated as CLRP.
CLRP provides up to $65,000 in student loan forgiveness benefits to qualifying Military Personnel, with the amount youre able to qualify for determined by your Service Branch, and MOS Code. Some Branches offer better benefits than others, and in some branches, only certain MOS Codes will qualify for the benefit, but for those who can swing it, this is an excellent opportunity.
For details on how it works, be sure to visit my page about the Military College Loan Repayment Program, and the specific pages talking about CLRP benefits for each branch of the military, including the Army Student Loan Repayment Program, the Navy Student Loan Repayment Program, the Air Force College Loan Repayment Program, and the National Guard Student Loan Repayment Program.
For more detail on all of the programs I mentioned above, please visit my page covering the Military Student Loan Forgiveness Programs.
President Trumps Student Loan Forgiveness Program
During the 2016 Presidential Election, I thought then Candidate Trump had a good chance of becoming the first Student Loan President, but my dreams have been dashed by all the terrible decisions his Secretary of Education Betsy DeVos has made since being appointed.
No one yet knows whats going to happen when President Trump finally announces his reforms to Federal student loan laws, including Obamas student loan forgiveness program, but Im still hoping beyond hope that hell make things better than they currently are .
Theres a good chance that President Trump is going to significantly reduce benefits, making it harder to qualify for forgiveness, and potentially even getting rid of the forgiveness option entirely.
We wont know until his official plans are announced, so for now, well all just have to hang tight. For speculation on what I think is going to happen, however, please visit my page on President Donald Trumps Student Loan Forgiveness Program.
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Cancellation Of Student Loans Due To School Closure
Many former students were lulled into taking out student loans to attend a school with glowing descriptions of future careers and high salaries, only to have the school deteriorate or close before they could finish the program. You can cancel a FFEL, Direct, or Perkins loan if you received any of the loan proceeds after January 1, 1986, as well as the portion of a consolidation loan used to pay off any of these loans if you were unable to complete the program because the school closed:
- you were enrolled when your school closed
- you were on an approved leave of absence when your school closed
- your school closed within 120 days after you withdrew, if your loans were first disbursed before July 1, 2020, or
- your school closed within 180 days after you withdrew, if your loans were first disbursed on or after July 1, 2020.
You aren’t eligible for cancellation of your loans if your school closes and any of the following applies to you:
- Except in exceptional circumstances, you withdrew more than 120 or 180 days before the school closes.
- You’re completing a comparable educational program at another school through a teach-out agreement with the school, by transferring academic credits or hours earned at the closed school to another school, or by any other comparable means.
- You completed all the coursework for the program, even if you haven’t received a diploma or certificate.
Pay More Than The Minimum
Whenever possible, pay more than the minimum each month, but do it with care. Some lenders may apply any extra money toward your next month’s payment or spread it around among all your loans, which won’t have the impact you want it to. Send your extra payment with instructions to your lender telling it that you want any extra funds applied to the principal balance on your loan with the highest interest rate first. Follow up with your loan servicer later to ensure that it applied your payment correctly.
You might have to make some budget changes to free up some extra cash. You could also use year-end bonuses, tax refunds, and other windfalls, though you can’t count on these to help you out every month.
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What If I Am Rejected
As the PSLF has many requirements, it is quite possible that the borrower will fail one or a few of them. In this case, the officials will notify the borrowers about failure reasons. The good news is that if there is a lack of qualifying payments due to a wrong repayment plan, you can still benefit from this program.
Such change is covered in the Temporary Expanded Public Service Loan Forgiveness option. Several conditions make the borrowers eligible for this program. First, the only reason for rejection should be some or all payments made with the wrong repayment plan not Income-driven plans. Besides, the borrowers should have a minimum of 10 years of full-time experience from a qualifying employer. If the debtors 12 months prior payment and the last payment is as much as the amount should have been paid under Income-driven plans, the borrower will qualify.
Keep in mind that the TEPSLF is a temporary program it depends on the number of available funds and is based on the first come-first serve principle. Therefore, borrowers need to act fast and cancel student loan debt with this program before it is out of funds.
The Risks Of Using Private Student Loan Consolidation For Federal Loans
Federal relief programs only apply to federal loans. You cant convert private student loan debt into federal. But the same is not true in reverse. Theres nothing that stops you from paying off federal loans with personal loan. Just like you can take out a personal loan to pay off your credit cards through consolidation, you can do the same thing with student loans.
However, just because you can do something, it doesnt mean you should. Converting your federal loans into private debt should only be done with extreme caution. It means you are no longer eligible for federal repayment plans or Direct Consolidation. More importantly, you give up your eligibility for federal student loan forgiveness programs.
That last part only matters if you work in a qualified public service profession. That makes this conversion especially risky for teachers, nurses, firefighters and other first responders. Public Service Loan Forgiveness can be extremely beneficial for cutting the total cost of repayment. So, anyone who may qualify for PSLF should probably avoid converting their federal loans.
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