When struggling to find employment post-graduation and working at the local Starbucks to make ends meet, it’s hard to fathom how you’re going to make a dent in such a massive debt load.
According to a report by The Project on Student Loan Debt, 71 percent of college seniors in 2012 had student loan debt, with an average balance of $29,400 per borrower.
Whether you’re ready for it or not, that first bill will come in, kicking off the seemingly endless repayment process. Attempting to escape your student loan debt by ignoring your obligations will only worsen the situation – ballooning your debt and destroying your credit.
If you want to be rid of your student loans for good, start by putting a plan of place using one of these five strategies.
1. Declare bankruptcy
For the most part, you cannot discharge student loan debt by declaring bankruptcy. However, if you can prove repayment would cause you or your dependents “undue hardship,” you might be the exception to this rule.
“Undue hardship” is determined by the courts. If they find based on your current income and expenses, a “minimal” standard of living for you and your dependents is not sustainable (if forced to repay the student loans), there’s no likelihood of any future ability to repay and you have made efforts to repay the loans, then you might qualify for discharge of your student loans in bankruptcy.
While bankruptcy can provide necessary financial relief, it also comes with long lasting credit consequences that should be carefully considered before attempting to file. It’d be smart to contact a firm that specializes in bankruptcy first.
2. Switch to an income-based repayment plan
Cap your federal student loan payments at 10 to 15 percent of your current discretionary income (the difference between your adjusted gross income and the poverty line) by enrolling in the Income-Based Repayment Plan.
If you still carry a balance on your student loans after making payments for 25 years, the remainder of the debt and all interest accrued will be discharged. Be warned, though, the IRS will count the discharged debt as taxable income.
While this program can provide a great solution for those who qualify with high levels of student loan debt and small incomes, income-based repayment generally increases the length of the repayment period, which means paying more in interest over the life of the loan.
3. Work in public service
You may be able to qualify for Public Service Loan Forgiveness by working a public service job full-time and making 120 qualifying payments on your eligible loans during that time.
To qualify as a public service employee, you must work full-time with a federal, state or local government agency, entity, organization or not-for-profit.
It can be hard to enjoy the full benefit of the Public Service Loan Forgiveness plan, as you must also qualify for income-based repayment and remain in the public sector until all 120 payments are made (and there’s always the chance the program could be cut all together.)
4. Join the military
While some may be able to qualify for the Public Service Loan Forgiveness program, joining the Armed Forces opens up eligibility for a variety of other military specific loan repayment and forgiveness programs like College Loan Repayment Program, The National Defense Student Loan Discharge and the Servicemembers Civil Relief Act.
Note most of these programs adhere to very strict and specific guidelines and require a willingness to accept the full implications and considerable risk of being a member of the United States Military.
5. Pay them back
Paying back your student loans on time and in full is highly advisable – if you can keep up with the payments. One late or missed payment on a loan can cost you dearly in fees and credit.
If you become so overwhelmed with payments that you default on your federal loans, the government can garnish up to 15 percent of your wages and social security in addition to withholding tax refunds.
It’s better to stick with a longer and more expensive repayment plan you can afford each month than to cope with the consequences of falling behind.
Regardless of how hard you wish them away, if you don’t do something about them, your student loans will never disappear. Use one of the strategies outlined above to be rid of them as soon as possible so you can put your money toward future goals instead paying off your past for the rest of your life.
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