Do you have a mountain of student loan debt? You’re not alone. Student debt has ballooned up to $1.4 trillion in the United States. About are in default, and 5% are delinquent.
And you can’t just walk away from your loans if you can’t afford them. The federal government will – and they’ll give your employer a nice letter about it.
Whether you’re having trouble making your payments or you just want to break down that mountain of debt once and for all, there are things you can do to eliminate your college debt.
1. Refinance Private Loans
If you have private student loans and a steady income, refinancing can lower your monthly payments and save you money in the long run.
While you can refinance your federal loans, you may want to think twice before doing that. Once you refinance federal debt, you can no longer take advantage of the protections or opportunities that come with government loans, like income-based repayment plans.
Refinancing your private debt will lower your interest rates. You’ll need good credit and a steady income to qualify.
2. Choose a Career in Public Service
The government offers a few student loan forgiveness programs, but there’s one in particular that’s relatively accessible: Public Service Loan Forgiveness.
In order to be eligible, you must make 120 payments on your loans while working for a qualified employer.
Qualified employers include:
- Non-profit organization, which is exempt under the Section 501(c)(3) of the Internal Revenue Code.
- Government organizations of any kind (local, state, federal or tribal)
- Other non-profits that are not tax exempt but provide a qualifying public service
You may also qualify for this program if you serve as a full-time Peace Corps or AmeriCorps volunteer.
Only federal loans qualify for this program, so you cannot use this method to eliminate private student debt.
Teachers can also have their debts forgiven through the Teacher Loan Forgiveness or Teacher Cancellation programs. The latter program is for Federal Perkins Loans, while the former is for other forms of federal loans.
Teachers can qualify for this program after five years of service.
Teacher forgiveness programs will not wipe out all of your debt, however. Those who qualify for these programs can have a combined total of $17,500 of their debt erased.
3. See if You Qualify for Loan Discharge
Depending on your circumstances, you may qualify to have your loans discharged. There are a few programs that may erase your debt, or at least part of it.
Closed School Discharge
Some students may be eligible to have 100% of their federal loans discharged if:
- Their school closed while they were enrolled and were unable to complete their program because of that.
- Their school closes within 120 after withdrawing.
We’ve seen quite a few for-profit schools close recently, so there’s a chance you might qualify for this program. But if you have already graduated from one of these defunct schools or withdrew more than 120 days before it closed, you will not qualify.
You’ll need to apply for this program through your loan servicer, and you’ll need to make payments while your is being approved.
Total and Permanent Disability Discharge
Some types of federal loans can be discharged if you become completely and permanently disabled.
You will need to prove that you are disabled, and you will need to for this type of discharge.
Discharge Due to Death
If you die while your loans are in repayment, your loans will be discharged after submitting the required documentation.
Your loans may be discharged if:
- Your school falsely certified your loan eligibility.
- Someone else used your identity to falsely certify the loans.
- The school signed your name on the promissory note or application without your consent.
- Your eligibility was certified by the school, but you were disqualified from employment in the field you were training.
If you attended a for-profit college that defrauded you in some way, you may be eligible for loan forgiveness through the Borrower’s Defense scheme.
You’ll need to complete an or , and you’ll need to be able to demonstrate that the school defrauded you in some way. Read more about Borrower’s Defense .
4. Choose an Income-Based Repayment Plan
If you’re having difficulty making your monthly student loan payments, an income-driven repayment plan may help.
These plans are only available for federal loans, and your payments are based on two things: your income and the size of your family. There are four income-driven repayment plans:
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
These plans will reduce your payments to 10% of your discretionary income, or 20% in the case of the ICR plan.
Just keep in mind that you will likely be paying your loans for longer and you’ll pay more for the loan.