Freeing Yourself from Student Loans and Student Loan Debt
One of the fastest growing types of financial obligation today is student loan debt. This is not surprising, as the cost of attending colleges and universities is accelerating at a very rapid pace. Oftentimes, the only thing that is standing between a potential student and completing his or her higher education degree is cost. Therefore, when left with no other funding options, many students will obtain a student loan (or loans).
Yet, while these funds can help to move a student forward in their education, they also end up leaving one with a mound of debt upon graduation. And, in a world where jobs are hard to come by, this can put former students and graduates in a negative financial situation at an early stage in their lives.
Paying Back Your Student Loan Debt
Due in large part to today’s tough economy, many student loan lenders are being forced into easing up their repayment policies for borrowers. Although, while this is essentially not an ideal situation for the financial institutions that have provided the borrowed funds, it is oftentimes the only way that these lenders will see repayment.
Lately, there has been much debate regarding the rising rate of student loan debt. Such debate has focused in large part on how to prevent the interest rates on new federally funded subsidized undergraduate loans from continuing to rise.
Should You Refinance Your Student Loan Debt?
One option that some student loan borrowers have considered is refinancing their debt. This process is somewhat similar to the refinancing of a home mortgage where an individual may either consolidate a number of student loans into just one larger loan, or simply replace their current loan with a new one that may offer a more attractive interest rate or payment options.
At this time, loan consolidation is not an option for government obtained student loans. However, for students who may have a large amount of privately obtained student loan debt from banks and/or credit unions, refinancing or consolidating can significantly reduce the amount of monthly loan payments that are due.
Often, simply having a lower monthly payment obligation can make the student loan debt more manageable for a borrower. This is especially the case for those who may just be starting a new job at an entry level salary.
Finding Much Needed Relief from Your Student Loans
Recent changes in the way that federal student loans are repaid may lead to an increase in the forgiveness of more loans. With current rules, student borrowers are required to pay 15% of their discretionary income towards the payoff of their student loan balances. In these cases, the government will forgive the remaining balance due on the loan once the student borrower has consistently made payments over a 25 year period.
In 2010, President Obama’s administration gave approval for revisions in this policy that would end up capping these payments to just 10% of a student-borrower’s discretionary income, as well as forgive the debt after making only 20 years of consistent payments on the balance.
What If You Are Not Able to Repay Your Student Loans?
In some instances, a student loan borrower may be able to have his or her loan balance forgiven by their lender. In this case, students who borrowed funds through government student loan programs may have some options in terms of having some – or all – of their student loans cancelled. (It is important to note that at this time, student loans that were borrowed via private sources do not have this protection.)
In order to qualify to have all or part of your government student loans forgiven, there are some tax implications that you need to be aware of. In addition, even though some government obtained student loans are not subject to taxation, there are other such loans that may require that the student borrower claim the amount of the loan that has been forgiven as taxable income on their annual tax return.
There are some exceptions to this rule, as well, though. One exception may come in the form of the student loan discharge being pursuant to a provision in which the borrower works for a certain amount of time in a specific profession. For example, those who work in the field of teaching or social work may qualify for such an exception.
Other programs such as the Peace Corps and Volunteers in Service to America (VISTA) also provide options for loan forgiveness – up to 70% of a person’s student loan amount in some cases.