The emphasis our culture places on higher education and the ever rising cost of the same, has resulted in a generation of young people living with a crippling debt burden exacerbated by the most anemic job market our country has faced since 1945.
Many of you opted for a college education because you were told how much more you could earn over your lifetime compared to others with no degree. What you may not have been told, is those increased earnings, if they materialized at all, could be swallowed up by principal and interest payments on your college loans.
Sadly, many of you have had to put your future on hold as you struggle to unburden yourself from this monstrous debt.
What are my options?
Unlike most debt, relief in the bankruptcy courts from student loan obligations is extremely difficult. Less difficult than an outright discharge in Chapter 7, is repayment under Chapter 13. The majority of student loan debtors will not exercise either of these options for many reasons; social stigma, lower credit scores and the obstacle bankruptcy creates in obtaining future student loans, to cite a few of them.
So what other options exist? Student loan consolidation can be a source of relief to many. Generally speaking, all federal student loans can be consolidated. The plethora of student loan types makes any detailed “how to” discussion impossible in the space of this article.
Instead we will offer some general information intended to give one a sense of what to expect.
First, don’t expect a reduction in interest rate. In fact, your rate will be 1/8 of 1 percent higher than the weighted average rate. Consolidations use a weighted average of existing rates. In most cases waivers of late fees, reversals of penalty rates and other concessions are available. These concessions can save you big bucks and make the student loan consolidation worthwhile for that reason alone. Another obvious advantage of student loan consolidation is convenience; one payment, once per month, to one lender is a blessing. Standard term of repayment is ten years. You can find longer terms but sticking to ten years will save you a great deal of interest expense.
Who can help?
Student loan consolidations are available from the U.S. Department of Education’s Federal Direct Consolidation program. You can, however, consolidate with any lender. As with any business transaction, negotiate the best possible terms and comparison shop. Many lenders have carved out a niche in the student loan consolidation market. So, finding a lender should not be difficult.
If you are unemployed or faced with an illness that has reduced or eliminated your income, there is help in the form of forbearance or deferment. These must be regarded as options of last resort. Why? The interest clock continues to tick. The payment of interest charges are delayed or, but not forgiven. In truly desperate circumstance, it may behoove you to swallow your pride and consider a Chapter 13 bankruptcy. The catch-22 with Chapter 13 is that you must demonstrate a source of repayment to the court. With unemployment being what it is today, that is not always possible.
If you have federal student loans, you can explore the Income-Based Repayment option.
This option allows you to tailor your monthly payments based on your income. The term is 25 years, but if you maintain your agreement, forgiveness of any debt remaining at the end of the term is possible. It is worth considering.
If you work in the public service sector or for a nonprofit organization, you may qualify for the Public Service Loan Forgiveness (PSLF) program. This works along the same lines, but permits forgiveness after only 10 years, assuming you’ve dotted all the i’s and crossed all the t’s. This is a government program, so you should expect nothing less.
I would like to hear some of our reader’s views on the nation’s student loan crisis (in my view it is a crisis). Do you have any experiences or information that might be helpful to those struggling with this problem? If so, please share your thoughts … you could change a life!
(Editors Note (Derek): I can think of other options that are even simpler. How about you?)
Dominique Brown is a financial planner, landord, personal finance blogger and video blogger. He is the owner of YourFinancesSimplified.com where he talks about everything from being a new father to his worst financial mistakes. He has been featured on The Huffington Post and H&R Block. You can find him either on Twitter, Facebook, Youtube or Instagram.