A Guide to Getting Out of Student Loan Debt

Loans, Student Loans
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We’ve been there: You’re lying in bed with your laptop, frantically Googling for an answer to your student loan debt woes. When you don’t find a clear answer, you feverishly rephrase your search — maybe “help with student loans” will unearth a solution that “student loan relief” didn’t.

But there’s no single solution. Depending on your financial situation and the status of your loans, there’s a variety of different strategies for getting rid of student loan debt. Here’s a guide to everything you need to know.

When you’re up to date on your payments

The best time to get on top of your student loans is when you’re not in crisis mode. If you’re struggling but still making on-time payments, look into options that can lower your monthly payment, offer forgiveness, temporarily postpone your payments or lower your interest rate: income-driven repayment plans, forgiveness programs, deferment or forbearance, and refinancing.

The White House has a federal student loan repayment tool, and the Consumer Financial Protection Bureau has a private student loan repayment tool. Each helps you choose the best strategy for repaying your debt. Here’s an overview of all of your options:

        • Income-driven repayment plans cap your monthly payment at a percentage of your income, extend your loan term to 20 or 25 years, and forgive your remaining loan balance at the end of your term. There are four such plans: income-based repayment, Pay As You Earn, Revised Pay As You Earn and income-contingent repayment. They’re only available to borrowers with federal student loans.

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      • Federal loan forgiveness programs offer partial or full forgiveness for qualifying borrowers. You can qualify based on your repayment plan (income-driven plans offer forgiveness after 20 or 25 years), your career (teachers, for example, qualify for Teacher Loan Forgiveness) or your employer (government and nonprofit employees qualify for Public Student Loan Forgiveness).
      • Deferment and forbearance are two options that let you temporarily postpone your loan payments. The government offers both options for all federal student loan borrowers. Some private lenders also offer deferment or forbearance options, but the terms vary by lender. Interest still accrues on loans during deferment and forbearance in all cases — except during deferment for borrowers with federally subsidized loans or Perkins loans.
      • Student loan refinancing can save you money on loan payments by lowering your interest rate. You need good credit to qualify, but if you have that, it’s an especially good option for private student loan borrowers. You can refinance if you have federal student loans, but if you’re struggling to make your loan payments, you’re better off switching to an income-driven plan. If you refinance federal student loans, you’ll lose the option to switch to an income-driven plan, qualify for forgiveness programs, and enter federal deferment or forbearance.

If you have private student loans, your options for repaying them are more limited — most private lenders don’t offer income-driven repayment plans or forgiveness programs, and they don’t always advertise flexible repayment options they do offer. But if you’re scraping to make your monthly payment, ask your lender if there’s a way to temporarily lower or postpone your payments. The Consumer Financial Protection Bureau has a sample letter that you can personalize and use when you’re asking for a lower payment.

Regardless of whether you have federal or private student loans, you can pay more each month to reduce your balance and save money on interest. If you make an extra payment, tell your servicer or lender to apply the additional money toward your balance instead of a future payment.

If you’re late on your loan payments

If you’ve missed a payment or two on your student loans, catch up on your payments as soon as possible to avoid denting your credit history or defaulting. Until your federal loan goes into default, you’re still eligible for income-driven repayment plans and deferment or forbearance — use these options to lower your loan payment or temporarily pause your payments while you get back on track.

If possible, catch up on your federal loan payments before they reach 90 days late — that’s when federal student loans get reported to the credit bureaus as “delinquent.” That record of your late payments will stay on your credit report for seven years.

If you have private student loans, call your lender as soon as you start to get behind on your payments. The more upfront you are about your situation, the more likely the lender will be willing to work with you. Some lenders may offer you deferment or forbearance, or allow you to temporarily lower your monthly payments. But unlike the federal government with federal loans, they don’t have to. Private loans go into default one day after you miss a payment. Your lender can technically sue you after you miss a payment, but most lenders don’t jump to that step right away, says Josh Cohen, a lawyer specializing in student loans.

» MORE: Tips for tackling private student loan debt

If your loans are in default

When your federal student loans are in default, you have three options to get out of it: repay the debt you owe, go through rehabilitation, or consolidate your debt into a direct consolidation loan. In all three cases, you still have to pay back the money you owe. You may be able to negotiate with your loan holder to lower the total amount you have to pay back.

If you don’t deal with your defaulted federal loan, the government can garnish your wages, tax refunds or Social Security checks. Defaulting on federal student loans can also keep you from receiving more federal aid if you go back to school.

The path out of private student loan default is less clear — there is no rehabilitation program or consolidation option for private student loans. If you don’t pay, the only way for private loan holders to legally enforce their right to collect the debt you owe is to sue you. (Your loan holder could be your lender, servicer or a collections agency.) If the loan holder wins, it could earn the right to garnish your wages, tax refunds or Social Security payments to collect the money you owe.

Get in touch with a lawyer who specializes in student loans if your loans are in default — especially if you want to negotiate with your loan holder or if you’re facing a lawsuit. The National Consumer Law Center’s Student Loan Borrower Assistance program has a list of legal resources you can try.

Handling student loan debt in unusual circumstances

If you’re in one of a few unusual situations, you may be able to cancel your student loans. Here’s what to do in those cases:

      • Bankruptcy: In most cases, you can’t discharge your student loans in bankruptcy. The only time bankruptcy can eliminate your student loan debt is if you can prove that continuing to be responsible for your student debt would cause you “undue hardship” or prevent you from keeping a “minimal” standard of living.
      • Death or disability discharge: It sounds morbid, but your federal student loans can be forgiven if you die or become permanently disabled. Borrowers who are disabled have to submit an application for total and permanent disability discharge, which requires proof of the disability. Family members of a deceased borrower have to submit proof of death to the borrower’s loan servicer. Some private lenders also offer loan forgiveness for borrowers who die or become permanently disabled, but not all do.

What not to do with your student loans

If you’re feeling desperate, it could be tempting to say “yes” to a debt relief offer. But debt relief companies often misleading borrowers into paying for services they can get for free, including federal student loan consolidation, income-driven repayment and forgiveness programs.

For example, companies offering “Obama student loan forgiveness” can’t actually forgive your loans — they’re typically just charging a fee to enroll you in an income-driven plan, which you can do yourself for free.

Additionally, the Consumer Financial Protection Bureau cautions borrowers to steer clear of companies that promise immediate debt relief or those that ask for your Federal Student Aid ID or your permission for them to communicate directly with your loan servicer.

While there’s no way to be magically absolved from your debt, take comfort in the fact that you do have options. The real key to getting out of student debt is to understand those options and choose the best ones for you.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.