Various ways of dealing with student loans
Student loan crisis in the United States has reached biblical proportions. As of the year 2017, the combined debt stood at a whopping $1.3 trillion (slightly greater than the Gross Domestic Product of South Korea). It is now the second highest consumer debt trailing only the mortgage debt and higher than both the auto loans and credit card debts combined.
There are roughly 44 million persons in the United States (14.2% of the U.S population) who have some form of the student debt as of now.
The situation has further been exacerbated by the fact that the economic growth rate has slowed down considerably over the years. Fewer companies are hiring and many graduates face the grim prospect of ever finding a well-paying job.
Because of this, there is presently some apprehension as to whether that debt may ever be paid up in future or not.
In order to combat this menace effectively, several approaches have been put in place by the government and private lenders. The remaining portion of the article is dedicated to discussing some of these approaches and how they may mitigate this problem.
There are several programs that have been put in place by the federal, state, and local governments as well as private lenders to deal with the issue. Below are a few of those programs:
This is the writing off of whole or part of a student’s debt portfolio by the government or any other private lender. Under the Federal Law, it may be earned in two main ways. The first is by working in a public service scheme. The second is by remitting repayments via the income-contingent payment plans for a prolonged duration of time.
To qualify for the first option, one must be working for a non-profit organization. As like as the government, the military, volunteer work, or medical practice. Apart from that, the said individual must have remitted no less than 120 qualifying payments i.e. The minimum amounts due on time. Those payments must have been made while working for a qualified employer.
This is a federal, local, or state government organization or a not-for-profit organization that has a tax-exempt status. These include civil/public servants, nursing, social work, and firefighters.
Most persons qualify for debt relief after having been formally employed and actively servicing their loans for no less than 10 consecutive years. In addition to that, only those debt repayments remitted after October 1, 2007, qualify for this program.
It is the combination of multiple student loans or debt instruments into a single but larger debt.
This new debt normally has more favorable terms of reference. Such as lower rates of interests, lower monthly repayments, and longer grace period, among others. Under the Federal Law, only Federal Student Loans may qualify for a consolidation.
For one to be eligible for this, he must not be currently in school or enrolled in a less than part-time status.
Presently making loan repayments or are within the various loan’s grace periods, be of good repayment history i.e. not have defaulted previous loans, and carrying no less than $5,000-$7,500 in loans.
Student loan relief refers to the wholesome or partial cancellation of the student debt. It is only applicable to students who contracted federal loans, not private ones. It is worth noting that there is no wholesome relief.
Instead, there are only partial and temporal programs that are meant to alleviate the student debt burden. These are the deferment and the forbearance respectively.
Deferment refers to the suspension of the repayment of the principal for a predefined duration of time. In this sense, interests do not accumulate in case the loan is subsidized. In case the loan was unsubsidized, the interests do accumulate though.
Forbearance, on the other hand, refers to the reduction or the complete wipe-out of the amount repayable on a temporary basis. In this sense, the interests still accumulate and are required for a repayment.
Deferment option is open for all, regardless of the employment status, amount concerned, or income levels. Forbearance, on the other hand, is only applicable to persons who have been making the repayments for quite some time.
Student loans have several potentially disastrous consequences. These include the risks of defaults, hefty interests, penalties, and blacklists, among others. These ways and means of mitigating the issue are thus options that any serious lender ought to contemplate exploring.
It is worthy to acknowledge that the measures listed and discussed above are by no means exhaustive. There indeed exist several other options. Owing to the limited time and space at our disposal, we just could not discuss all of them. You may have to carry out further research independently to find out these other options.
To navigate this treacherous terrain of student loans effectively, you undoubtedly require the support and companionships of industry experts. Sites like Student Loan Savers can offer the much-needed starting point.