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#Six ways students can reduce debt if Biden program is killed by courts

Six ways students can reduce debt if Biden program is killed by courts

Students who borrowed money to pay for college are hoping for help from President Biden’s debt relief program, which for now is tied up in the courts.

If Biden’s program is killed off by the judiciary, however, it doesn’t leave student borrowers without options to reduce their debt.

Here are some options that student borrowers could consider. 

Income-Driven Repayment Forgiveness

Income-Driven Repayment (IDR) Forgiveness has the advantage of broad availability and lower monthly payments. But that may be offset by how long it takes to get forgiveness.

The plan bases monthly student loan payments off an individual’s income and family size. From there, an individual must make monthly payments over a 20- or 25-year span before the rest of the debt is forgiven. 

This option is popular for reducing the amount owed every month, but not everyone is aware of it. 

“I’ve seen with a lot of customers that I’ve talked to in the past that they’re shocked,” they qualify for an IDR plan, Trent Graham, Program Performance and Quality Assurance Expert at GreenPath Financial Wellness, told The Hill. He added that some clients “only had to make a $5 payment a month.”

Learn more about this option from the Department of Education here

Public Service Loan Forgiveness 

One of the most well-known types of loan forgiveness is the Public Service Loan Forgiveness (PSLF) program for government and nonprofit workers.

PSLF has been around since 2007. 

To qualify, a borrower has to be employed by the government or a not-for-profit organization, work full-time for the agency or group, have Direct Loans, repay loans under an IDR plan and make 120 qualifying payments. 

After 10 years of payments toward student loans as a government or not-for-profit employee under an IDR plan, the federal government will forgive the rest of your debt. 

Learn more about this option from the Department of Education here

Defer payments

It is unclear when the student loan payment pause will end. The Biden administration said payments will resume, at the latest, 60 days after June 30 or 60 days after the Supreme Court reaches a decision on the legality of Biden’s student debt relief program.

Once payments do resume, there are a number of ways to keep deferring them.

A borrower typically has to submit a request to their loan servicer to defer payments and show proof they meet the deferral requirements.

For certain loan types, the Department of Education will pay the interest that is accrued while payments are deferred. For other types, the borrower is still responsible for the monthly interest. 

“It really comes back to whether they’re a subsidized student loan or an unsubsidized student, so usually with the subsidized student loans, the government will cover the interest during that deferment period,” Graham said. 

Among the reasons loans may be deferred include cancer treatment, economic hardship, graduate school fellowship, military service, parent PLUS borrower, rehabilitation training and unemployment.

Learn more about deferring payments here

Student loan forbearance

Forbearance allows eligible individuals to temporarily stop making payments on student loans. 

Reasons for forbearance can be financial difficulties, medical difficulties, a change in employment or another reason the loan servicer finds acceptable. 

The main difference between deferring payments and forbearance is, no matter the type of loan, an individual will have to pay the interest that accrues while the payments are halted in forbearance.

Forbearance requests can last for 12 months; borrowers must reapply after that time. A person can stay in forbearance for three years. 

Learn more about this option from the Department of Education here

Bankruptcy

A person may be able to get student loans discharged in bankruptcy, but it is a historically difficult path. 

An individual would have to go to bankruptcy court and prove repaying the loans would cause “undue hardship.”

The criteria for “undue hardship” includes an individual not able to maintain a basic standard of living if they had the loan payments, the hardship will occur for a long time over the repayment period and a person made enough effort to try to repay before filing for bankruptcy. 

The standard is high and difficult to prove, but the Department of Education did make reforms to the process this year to help borrowers. 

The reforms make it so the government may not object to a person discharging their student loan debt in bankruptcy, depending on the circumstances, giving a slightly easier path for debt relief through this option.

Learn more about this option from the Department of Education here

Industry-specific relief

It is worth looking into if there are organizations who will help with student loan debt based on field of work. Some of these programs may be through the government, such as the Teacher Loan Forgiveness program for educators. 

Those in the law or medical fields can look into programs through different organizations to help forgive student debt, especially if they work with underserved communities. 

As borrowers face the year ahead with uncertainty of when student loan payments will resume, it is important to prepare to take advantage of other options if needed. 

Graham said it is common the above options are not taken advantage of because people don’t know where to find or look for them. 

“It really comes back to the knowledge of it and where to look for these types of programs. I think more are getting better at it, but there’s still more opportunities out there,” he said.

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