By Chris Gates.
Total student loan debt in the United States was $1.2 trillion last May, before the 2013-14 school year even began, according to the Consumer Financial Protection Bureau. The Institute for College Access and Success reports that the class of 2012 carried an average debt load of $29,400, nearly $3,000 more than the class of 2011.
Congress attempted to throw current college students a lifeline this past summer, passing the Bipartisan Student Loan Certainty Act of 2013. The bill, signed into law by President Obama on Aug. 9, lowers interest rates on nearly all new student loans taken out after July 1, 2013. Some in Congress believe more needs to be done—for example, Sen. Elizabeth Warren, D-Mass., wants students to get the same 0.75 percent rate on loans that the Federal Reserve gives to big banks. While Congress tries to figure out a solution, borrowers need to address their individual situations. A few ideas to get you started:
Government Loan Forgiveness and Cancellation
Working in the public sector can not only provide you with a sense of giving back to your community, but it can also significantly reduce your student loan debt. The Public Service Loan Forgiveness Program (PSLF) was established in 2007 to encourage college graduates to pursue public service jobs.
PSLF enables individuals working for nonprofits, in the public school system, as firefighters and other similar occupations to have their student loan debt forgiven after 10 years of on-time payments. The program only applies to payments made after October 2007, so the first beneficiaries will not see relief until 2017. Federal Perkins Loans and Federal Family Education Loans (FFEL) are not eligible for this program, however.
Federal law, particularly 11 U.S.C. Sec. 523(a)(8), outlaws the discharge of student loans via bankruptcy unless “undue hardship” on the debtor’s part can be proven by a preponderance of evidence. This law has widely been interpreted as a statutory prohibition from including student loan debt in bankruptcy petitions. But believe or not, discharge is both possible and likely under the right circumstances.
The Ninth Circuit Court of Appeals, in the case of Michael Heglund vs. The Educational Resources Institute, discharged $53,000 of the plaintiff’s $85,000 total student loan debt last May. The case set two important precedents: The Court ruled that Heglund’s wife’s refusal to work could not be used against him as part of the “good faith requirements” necessary to discharge the debt, and the ruling opened the door for partial discharge of debt for future litigants.
A 2011 Harvard Law School study found that 40 percent of petitioners who attempted to get their student loan discharged via bankruptcy were successful. Contact a few bankruptcy attorneys in your area to get a feel for their levels of commitment to this potential relief route.
Some Old-Fashioned Ways
Consider enrolling in an income-based repayment plan to lower your monthly payment and potentially forgive the remaining balance after 25 years.
You may be able to liquidate your future structured settlement or annuity payments and receive a lump of cash to help pay down your student loan debt. This could save you thousands in interest payments over the long haul. Visit J.G. Wentworth for more information about selling your future payments.
Consolidation programs are also available. Check with your loan originator for details.
About the author: Chris Gates is an ex-insurance rep, finance writer, and father.