Student Loan Debt Reduction Programs That May Help Qualified Candidates Reduce their Student Loan Debt
By Stephanie Smal, March 2014
According to a report compiled by the Federal Reserve Bank of New York, Student loan debt is at an all-time high - nearly 1 trillion as of July 2013 (Federal Reserve Bank of New York). Seven in 10 college seniors graduated in 2012 with student loan debt. The average debt per person was $29,400. AND over 600,000 federal student loan borrowers who entered repayment in 2010 defaulted on their loans by 2012. (StudentDebt.org) With statistics like these, it may be a good idea for borrowers to explore every avenue to decrease their debt. Here are four programs that may help:
Public Service Loan Forgiveness Program
Are you employed full-time in a public service agency? You may qualify for the public service loan forgiveness program if you:
- Work an average of 30 hours a week for an organization that is designated as tax-exempt
- Are able to make 120 on-time full monthly payments toward your student loan debt
- Have loans through the William D. Ford Federal Direct Loan (Direct Loan) Program
- Have made qualifying payments after October 1, 2007
If you have loans through other programs, you might be able to consolidate them in order to take advantage of the PSLFP. Visit the Federal Direct Consolidation Loan Information Center for more information on qualifying loans and consolidating loans.
Qualifying loans for Income Based Repayment include Stafford, Grad PLUS, Consolidation (except those in default), Parent PLUS loans, or consolidation loans that repaid a Parent PLUS loan.
In order to qualify for IBR, you must demonstrate that you have a Partial Financial Hardship (PHA). A PHA means that the annual amount due on all of your loans exceeds 15% of your most recent adjusted gross income and 150% of the poverty line amount for your family size and state of residence. If you're married and filing jointly, your spouse's income is also taken into account. If this sounds confusing, that's because it is.
A helpful aspect of IBR is that once you qualify, you'll continue to qualify regardless of whether or not your income changes. Also, after 25 years of payments, any remaining balances are eligible for forgiveness by the government.
Pay As You Earn
The pay as you earn student load debt management program is relatively new, it just went into effect at the end of 2012. It's similar to Income Based Repayment, with a few notable differences.
- Pay as you earn programs only apply to those who have had loans since October 1, 2007, and who have had at least one disbursement since October 1, 2011.
- Pay as you earn caps student loan payments at 10%, instead of IBR's 15%. Monthly payment levels are adjusted yearly. Direct and Direct Consolidation loans qualify, but all other loans are ineligible.
While debt forgiveness and reduction programs can feel like a daunting, bureaucratic subject, it may be worth spending some time researching to see whether you qualify for these programs. It could mean the difference between several years of loan repayment versus several decades, or a monthly payment that's manageable versus one that's virtually impossible.
Managing your student loan debt is a very personal endeavor, the information provided in this article is not exhaustive, make sure you discuss your specific circumstances with a qualified student loan administrator before making any major financial decisions.
About the Author: Stephanie Small has a B.A. in English from Yale University and an MSW from the Smith College School of Social Work