A Guide to Student Loans Debt Relief—Forgiveness, Discharge, and Refinancing
22 Oct 2018
One of the biggest debts people have today is their student loans. Many people are looking for ways to reduce their debt. The good news is that there are ways to do it. However, these solutions are not for everyone.
Student Loans Debt Relief Programs
There are qualifications and requirements for each program. You need to find out if you are qualified for one. To get you started, here are ways to manage student loan.
1. Forgiveness Programs
The good news is there are forgiveness plans that can cancel student debt. The bad news is that it’s not easy to meet the requirements of these programs. The person gains qualification after rendering service for a certain number of years in a specified career field that includes teaching and the military.
Most programs are limited to federal loans. If you have a private loan, you might want to look for other ways to manage it. The following are some of the initiatives available for people with federal loans:
i. Income-Driven Repayment Plans
There are four types of income-driven repayment plans available for qualified borrowers. Their purpose is to cap monthly payments based on one’s income. When you are part of the package, the balance can be eligible for forgiveness after twenty to twenty-five years. This type of plan is ideal for people with large balances compared to their income. As long as they pay the installments diligently every month, they can easily be in the running for forgiveness.
ii. Public Service Employees
Government employees and those employed by qualified non-profit organizations can apply for this initiative. Qualified individuals can have their balance cancelled after making at least 120 payments. The best thing about this package is that the forgiven amount is tax-free. To be eligible for the initiative, you must make payments as part of an income-driven plan.
Public school teachers can be eligible for forgiveness after working for five years in a row. The package can forgive up to a maximum of $17,500, as long as they took out their loans after October 1, 1998.
2. Discharge Programs
There are several situations that can result in the discharge of your federal loans, however, the difference between forgiveness and discharge is that you are charged for the remaining balance for the latter.
i. Closed School
You can get a discharge if the college shuts down. To meet the requirements for a discharge, you must be enrolled or left within 120 days before the school shut down.
You should contact the loan provider to apply for a discharge. Keep in mind that you must continue making the monthly payments on the loan while the lender is processing the discharge application. Once approved, there’s no need to make loan payments. There are cases in which the creditor refunds some or all of the payments made on the student debt.
ii. Defrauded by Colleges
Defrauded students can be eligible for debt relief. They need to file for a borrower defense repayment claim to begin the process. Once the Department of Education approves the claim, the loan is cancelled. The school must be involved in extensive falsification or deception that affected many students.
iii. Total and Permanent Disability
If a person can’t work due to permanent disability, the loan’s remaining balance can be cancelled. The disability can be mental or physical; however, be eligible, the individual must provide documents proving the disability.
Once the loan is discharged, the government will monitor one’s disability and finances for a maximum of three years. Failure to meet the requirements during this period will result to the reinstatement of the loans.
Federal loans are discharged after the death of the borrower. The creditor requires a death certificate to process the loan cancellation. If the parent’s PLUS loan was used to pay for the college education, it can be discharged if either the parent owning the loan or the student dies.
If an individual isn’t in the running for a forgiveness or discharge, he or she can opt for refinancing to pay the student loan. Refinancing allows the borrower to apply for a new loan to pay off all existing debts with the companies like lend up, prosper or nation21loans.com. Refinancing can save you thousands of dollars over the life of the loan. However, refinancing depends on your credit score, repayment period, and the existing interest rates. As long as you have a steady income, it is advisable to refinance the debts as soon as possible.
Most private lenders have strict underwriting requirements. Refinancing is applying for a new loan, and that means lenders consider several factors to determine whether to approve the application or not. Just like any private loans, lenders consider the borrower’s credit score, income, employment, and other debts, just to name a few factors.
If you want to go through refinancing, shop around for lower interest rates. Getting the lowest rate available will save you more money. Some lenders offer refinancing with interest rates as low as 1.95 percent.
Make sure you ask the lender if they can combine private and federal loans if you have both. Some lenders can bundle all types of student debts together. Be careful, though, because refinancing a federal loan with a private provider will disqualify you for forgiveness, discharges, and income-based repayment plans.
These are the things you should know about reducing or cancelling your student debt and making it more manageable. You should consider all options available before deciding. Make sure to check all opportunities for discharge or forgiveness first before opting for refinancing the student loan.
Find out the best financial solution for your situation. Don’t give up if you are not qualified for programs offered by the federal government.
You should also do proper research when looking for ways to manage college debt. Some organizations claim they can help with your finances but charge costly fees. The only way to get debts cancelled is through the legal programs offered by the government. Applying for one is free as long as you qualify.