Lana Oconnell
Student loans can be a burden, and it's understandable to seek ways to reduce or eliminate this debt. While it may be challenging to get out of paying student loans entirely, there are options to ease the repayment process and explore potential forgiveness or discharge. Defaulting on federal student loans can result in garnishment of social security benefits and tax returns, wage deductions, and legal consequences. However, there are alternatives to default, such as contacting your loan servicer, applying for an IDR plan, exploring loan forgiveness programs, or considering consolidation or refinancing. It's essential to be cautious about potential scams and seek qualified help from credit counseling nonprofits or government resources like the Consumer Financial Protection Bureau (CFPB) and Federal Student Aid.
Characteristics of getting out of paying student loans
| Characteristics | Values |
|---|---|
| Loan forgiveness | PSLF, IDR, TPD, Closed School Discharge |
| Loan repayment | IDR, Loan Simulator |
| Loan default | Garnishment of federal tax returns, wages, and Social Security payments, Loss of eligibility for federal student aid |
| Loan scams | Any forgiveness programs that promise to get rid of debt without making payments |
| Loan consolidation | Eligibility requirements, Interest rates, Benefits, Collection fees |
| Loan complaints | CFPB, Federal Student Aid, State Attorney General, Student Loan Ombudsman |
| Loan counselling | Credit counselling nonprofits, Free student loan advice |
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Student loan forgiveness
One way is through the Public Service Loan Forgiveness (PSLF) Program. This program allows federal student loans to be forgiven after 120 qualifying payments (equivalent to 10 years) while working for a qualifying public service employer. Qualifying employers include government agencies (federal, state, local, or tribal), the U.S. military, and certain non-profit organizations. Public service employees such as firefighters, police officers, and nurses may also be eligible for PSLF. To apply for PSLF, borrowers can use the PSLF Help Tool provided by the U.S. Department of Education to figure out their next steps and document their qualifying employment.
Another way to obtain student loan forgiveness is through Income-Driven Repayment (IDR) plans. These plans are available for most federal student loans and cap monthly payments based on the borrower's income and family size. If the borrower's income is low enough, their monthly payment could be as low as $0. Under IDR plans, the remaining balance on the loans may be forgiven after 20 or 25 years of repayment. It is important to note that borrowers with Direct Loans or federally-managed FFELP loans may automatically benefit from a one-time IDR adjustment, while those with FFELP loans held by commercial lenders or Perkins loans not held by the Department of Education can benefit by consolidating into Direct Loans.
In addition to PSLF and IDR plans, borrowers struggling to make their student loan payments can also consider loan rehabilitation and consolidation. Rehabilitation allows borrowers to make payments based on their income to get out of default, while consolidation combines multiple loans into a single new loan with a fixed interest rate. However, it is important to consider the potential loss of benefits, such as progress towards loan forgiveness, when consolidating loans.
While student loan forgiveness can provide much-needed relief, it is important to be cautious of scams. Borrowers should be aware that they do not have to pay any fees to receive credit toward loan forgiveness, and any requests for payment are scams. Additionally, defaulting on federal student loans can have serious consequences, including garnishment of wages, federal tax returns, and Social Security payments, as well as loss of eligibility for federal student aid. Therefore, it is crucial to prioritize staying current on loan payments and exploring the various options for repayment assistance if needed.
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Loan consolidation
Consolidating your federal student loans may also cause you to lose credit for your payments towards income-driven repayment (IDR) forgiveness. For example, if you have made 100 qualifying payments and then decide to consolidate, your payment count for forgiveness will be reset to zero. You may also lose other benefits such as Perkins Loan cancellation benefits and Public Service Loan Forgiveness. Therefore, it is important to evaluate the terms of a potential consolidation loan carefully before making a decision.
If you have private student loans, you can also consolidate them into a new private loan. This may allow you to lower your monthly payments and release a co-signer from your existing loan. However, you cannot consolidate both federal and private loans through the federal program.
Active-duty servicemembers should be aware that if they consolidate their loans, they may lose benefits such as the interest-rate reduction under the Servicemembers Civil Relief Act (SCRA). Additionally, if you consolidate or refinance student loans with non-student loans, the refinanced loan may no longer qualify for the student loan interest tax deduction.
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Loan rehabilitation
Defaulting on federal student loans can result in garnishment of social security payouts and benefits. It can also cause issues for cosigners, such as parents, who are then forced to pay even though it is not their debt.
It is important to note that loan rehabilitation is a one-time opportunity. If you default again after rehabilitating a loan, you will not be able to rehabilitate it a second time. However, this rule does not apply to borrowers who completed a rehabilitation agreement during the pandemic payment pause or used Fresh Start to get out of default.
There are other ways to get help with your student loans, such as loan forgiveness programs. For example, if you work full time for a government or not-for-profit organization, you may qualify for forgiveness of the remaining balance of your Direct Loans. You may also be eligible for loan forgiveness if you teach full time for five consecutive academic years in certain elementary or secondary schools. Additionally, if you have a disability that severely limits your ability to work, you may qualify for a TPD discharge, which would mean you would not have to repay your federal student loans.
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Bankruptcy
If you are considering bankruptcy as a way to get out of paying your student loans, there are a few things you should know. Firstly, bankruptcy will not automatically discharge your student loans. You will need to take additional steps to request that the judge discharge your student loans, and it is up to the court to decide whether to grant this request.
To have your student loans discharged in bankruptcy, you must demonstrate that you are facing "undue hardship". This means showing that your hardship will continue for a significant portion of the loan repayment period, and that you have made a good-faith effort to repay your loans before filing for bankruptcy. Examples of undue hardship include retirement, disability, long-term unemployment, or a low income. It is important to note that bankruptcy judges interpret the definition of "undue hardship" differently, so it is not guaranteed that your request will be granted.
If your request for a discharge is denied, you may be able to appeal the decision. Additionally, there are other options available to manage your student loan debt, such as pausing payments through deferment or forbearance, or enrolling in an income-driven repayment plan.
It is also important to consider the type of bankruptcy you are filing for, as this will impact the treatment of your student loans. Under Chapter 7 bankruptcy, you are asking the court to cancel all of your debt, but you must meet certain income requirements to qualify. On the other hand, Chapter 13 bankruptcy involves reorganizing and lowering your debt through a repayment plan approved by the bankruptcy court. While there is no income requirement for Chapter 13, you must continue making payments on your debts for 3 to 5 years before the court will cancel the remaining debt.
Finally, it is worth noting that bankruptcy may not be the only option to get out of paying your student loans. If you have private student loans, certain types of education loans may be dischargeable in bankruptcy without the need for an adversary proceeding. Additionally, if you are permanently disabled, you can apply for a discharge outside of bankruptcy. Seeking legal advice from a qualified professional is always recommended to understand your specific options and the potential consequences of any action.
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Cosigners
A cosigner is someone who commits to the joint responsibility of repaying a loan, along with the primary borrower. If you're a parent, guardian, or family member of a college-age student, you may be the cosigner. If you decide to co-sign, you are legally taking on the obligation for paying back the loan in the event that the student can't make the payments.
Most federal student loans won't require a cosigner, but there are exceptions. For instance, Direct PLUS loans require an endorser (similar to a cosigner) if the borrower has adverse credit history. Federal undergraduate loans and some grad school loans don't require credit checks, so even if a student doesn't have a credit history, they could still be eligible for the loan.
Private student loans usually require a creditworthy cosigner. This is true for over 90% of private loans for undergraduates and more than 75% for graduate and professional students. Private student loans without a cosigner are available but typically only for creditworthy borrowers. To be creditworthy, you must have a good to excellent credit score with a strong credit history.
If you've co-signed a private student loan, you have an equal financial responsibility and legal obligation to make sure the loan is repaid. A 2019 survey found that a quarter of co-signers end up making at least one payment because the primary borrower failed to. If the loan goes into default, the lender can sue both you and the primary borrower to collect on the debt.
Some loans allow you to be released from liability if the borrower makes payments for a certain length of time. For example, SoFi offers cosigner release on private student loans after 12 consecutive payments have been made on the loan. The cosigner usually needs to apply for the release.
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Frequently asked questions
If you are struggling to afford your student loan payments, you can reach out to your servicer to ask about your options. Reliable lenders will want to work with you to help you get out of default. You can also submit a complaint to the CFPB about federal or private student loans.
An IDR (income-driven repayment) plan bases your monthly payment on your income and family size. If you repay your loans under an IDR plan, the end-of-term balance on your student loans may be forgiven after you make a certain number of payments over 20 or 25 years.
Yes, there are several student loan forgiveness programs. For example, if you work full time for a government or not-for-profit organization, you may qualify for forgiveness of the entire remaining balance of your Direct Loans. There are also forgiveness programs for teachers, and if you have a disability that severely limits your ability to work, you may qualify for a TPD discharge.
If your loan is in default, the lender can file a lawsuit against you to collect on the debt. Defaulting on a federal student loan can also result in the garnishment of your federal tax returns, wages, and Social Security payments, as well as loss of eligibility for federal student aid.
One way to get rid of private student debt is through discharge bankruptcy, but this is an expensive and arduous process. If you are having difficulty making payments, you should contact your private loan holder about renegotiating your payment or taking a short-term payment pause.
