Dont Qualify For Student Loan Forgiveness Alternatives For Conquering Your Debt
Not everyone qualifies for student loan forgiveness. If youre ineligible and struggling to pay your loans, consider other strategies for managing your debt.
One approach is accessing the income-driven repayment programs mentioned above, since you can reduce your monthly payments significantly. But if you dont have qualifying federal loans, or if you need a complete pause from making payments, consider putting your loans in deferment or forbearance.
You could qualify if you return to school, encounter financial hardship or have another eligible reason. Some private lenders will also put your loans into forbearance temporarily, so speak with your lender about your options.
I Have To Borrow Money For School What Are My Options
If you have to take out student loans, you essentially have two choices: federal student loans and private loans.
For most borrowers, federal student loans are the best option. When you start to pay back your federal loans, the interest rate will be fixed, which will help you predict your payments aftergraduation. And in some cases, the federal government will pay the interest on your loans while you are in school – these loans are called subsidized loans.
Other student loans are generally private student loans. The most common private student loans are offered by banks. Their interest rates are often variable, which means your interest rates and payments could go up over time. Private loans can also be more expensive – rates have been as high as 16% over the past couple of years. And when it is time to repay, private loans don’t offer as many options to reduce or postpone payments.
For most people, federal student loans are a better deal than private student loans, so you’ll want to take advantage of federal options first.
Student Loan Forgiveness: The Cost Of Ignoring Student Loan Cancellation
Supporters of wide-scale student loan forgiveness that theres also a cost to not cancelling student loans. . Student loan borrowers would face life-changing debt levels, further delay getting married or starting a family, and forgo saving for retirement. They say the economy would be adversely impacted, which can affect student loan borrowers and non-student loan borrowers alike. They believe that failure to cancel student loans could increase inequality and further the divide between haves and have-nots. Supporters of student loan forgiveness dont view mass student loan cancellation as a necessary option. Rather, student loan cancellation for them is a requirement. . Without this essential student loan relief, they believe the higher education system will remain broken and student loan borrowers will continue to swim in debt they cant afford to repay.
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Federal Vs Private Student Loans
There are two types of : federal student loans and private student loans. If youre trying to figure out how youre going to pay for school, youve likely thought about both. Federal and private student loans are not the same and its important to know the difference.
Federal student loans are made and funded directly by the federal government. To apply, you need to complete the Free Application for Federal Student Aid .
Sometimes referred to as non-federal or , private student loans are made and funded by private lenders, such as banks and online lenders.
But when it comes to paying for college no matter if youre an undergraduate student, a graduate student, or a parent theres more to know about federal vs. private student loans. Lets look at each one in more detail.
Private Student Loan Repayment Plans
When it comes to repayment after graduation, many private student loan lenders will offer payment assistance if its needed, but the available options are more limited than federal loans. For example, private lenders typically cannot offer income-contingent repayment plans or loan forgiveness. That said, the terms of a private loan can typically be altered after signing if assistance is needed.
The sooner you begin paying down the principal and interest on a private loan the better, but circumstances do not always allow for that. Repayment options vary by lender but common plans include:
- Interest Only You make interest-only payments for the first two years of the repayment term of your loan.
- Interest Plus You make interst payments, along with a monthly amount you determine for the first two years of the repayment term.
- Full Principal and Interest You start repaying your principal plus interest right away.
Some lenders offer more repayment flexibility than others. At College Ave., in addition to offering a forgiveness policy, we work with you on repayment options, should you encounter financial hardships.
Learn more about .
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Debt Deferment And Forbearance
Many borrowers confuse deferment with loan forbearance. These two options are similar because both allow borrowers not to make monthly loan payments for some time. Hence, debtors in temporary financial struggles can choose the benefit from these possibilities. If you believe that you will have better finances in several months, you can request forbearance or deferment on your loans. However, there exist several pre-conditions.
First, not all lenders are favorable in terms of non-repayment possibilities. It might take hard work and time to convince the private lender that you desperately need this opportunity. Second, even if you get rid of debt repayment responsibility, your interest payments continue accruing.
Once the forbearance period ends, your interest can be capitalized- added to the original debt balance. Hence, outstanding debt amount increases, and you might end up with higher interest payments than you had before forbearance.
Private Student Loan Forgiveness
Although private student loan forgiveness programs dont exist in the traditional sense, there is help out there for private student loan borrowers in certain circumstances. The key is to talk to your lender if youre struggling to see what options are available and to act fast.
You dont want to fall into delinquency or deferment, which could hurt your credit. So if youre facing difficulties with your student loan payments, take action today.
Caitlin See contributed to this article.
Have you used any of these alternatives to private school loan forgiveness?
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Federal Student Loan Repayment Plans
Every loan comes with terms for how and when you will be required to repay it. The repayment term usually refers to the amount of time you are given to repay your loan. Paying the loan back sooner will result in a lower overall cost but will result in larger monthly payments. Repayment terms can also refer to different options for repayment.
In the case of federal student loans, the Department of Education sets out all terms for repayment. If circumstances make monthly payments difficult to meet, the DOE has programs that can lower or erase your monthly payments, and/or extend your repayment duration.
Converting Private Student Loans Into Federal Loans Eligible For Forgiveness
If federal loans have the best path to forgiveness, turning private loans into federal loans is an obvious fix.
Unfortuantely, options for this sort of conversion are limited. No mechanism exists to consolidate private debt into federal debt.
However, creative borrowers can essentially convert their private loans into federal loans using a couple of clever strategies:
- Borrowers still in school can use any income or savings to pay down their private debt. Most borrowers use their income from summer work to reduce what they borrow the following year. Instead, borrowers can use this income to pay down high-interest private loans. The next year, these borrowers target federal loans to pay for school. This process replaces private debt with federal debt. It can be especially effective for graduate students who have high federal borrowing limits.
- Borrowers in repayment can leverage federal repayment options to pay down private debt. If a borrower can get a lower payment on their federal loans, they can pay extra towards their federal loans. With a large variety of federal repayment plans available, many borrowers can find lower monthly payments. Making this switch means the private debt disappears quicker, and the federal debt lasts longer.
Borrowers interested in converting private debt into federal debt should check out this article.
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Which One Is Right For You
Federal and private student loans are helpful for anyone who wants to start paying for college or further their studies into a career school. Federal student loans have lower interest rates and offer the chance for federal government assistance and loan forgiveness. Meanwhile, private student loans help you cover the total cost of your attendance, effectively letting you borrow a higher amount of money. The interest rates for both types of loans are competitive, although private student loans offer the chance to refinance and consolidate loans, which is helpful if you want to get lower rates and shorter repayment terms.
Grants To Pay Off Student Loans
Grants are a great way to pay off your student loans, usually with money that does not need to be repaid. There may, however, be eligibility requirements as well as service or employment requirements.
Student loan grants are issued by the federal government, state governments, and nonprofit organizations.
Grants are often used as an incentive to entice graduates to work in fields experiencing staffing shortages. For example, there are lots of grants available to doctors, nurses, and other healthcare professionals.
Student loan grants are oftentimes limited to certain fields and particular geographical regions.
Below we go through some of the options available to you when it comes to grants to pay off student loans.
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Am I Eligible For Federal Student Aid
Eligibility requirements for federal student aid include:
Being a U.S. citizen or an eligible noncitizen
Remaining in good standing on any federal student loans you have
Being in or accepted for an eligible degree or certificate program
Maintaining adequate academic progress
How do I apply for Federal Student Aid?
Create an FSA ID account if youre going to submit your FAFSA online or track its status online. If youre going to submit a paper FAFSA by mail and wont be tracking its status, you wont need an FSA ID.
Know what happens after you submit the FAFSA. This includes:
Learning how to correct or update information on it.
Finding out how and when youll get your aid.
Know the Deadlines for Submitting the FAFSA
The federal deadline for submitting the FAFSA for the 2021-22 school year is June 30, 2022.
The federal deadline for submitting the FAFSA for the 202021 school year is June 30, 2021.
Many states and colleges use the FAFSA for their financial aid programs. Those deadlines vary.
Federal Student Loan Benefits
- You have flexibility. Though any student loanfederal or privateis a legal agreement and must be paid back with interest, federal student loans generally offer more flexible options than private student loans. For example, with federal student loans, the borrower can change their repayment options even after the loan has been disbursed .
- You can make payments based on your salary. Some federal student loans allow for income-driven repayment plans, which cap payments based on the borrowers income and family size.
- You dont need a strong credit history to get federal student loans. Unlike with private student loans, most federal student loans dont require the borrower to have a strong credit history. This can be especially helpful for recent high school graduates who plan on attending college but havent had enough time to build up credit of their own.
- You dont need a cosigner. With most federal student loans, other than Direct PLUS Loans, the borrowers credit is not considered, so its not necessary to apply with a cosigner.
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Private Student Loans Vs Government Student Loans: Whats The Difference
If you are looking forward to going to college and you know you need financial help, you may not give much thought to whether you should take out private student loans or federal student loans. Either way, you will end up with debt, right? The truth is, deciding between private student loans and federal government student loans is not as simple as comparing apples to apples. Your financial future could be affected by your understanding of how these loans differ.
Select A Repayment Plan For Your Federal Student Loans
Within the grace period you may receive information about repayment from your lender. Youll have a choice of several repayment plans. Find the right one for you.
Most federal student loans are eligible for at least one income-driven or income-based repayment plan . These repayment plans are based on a percentage of your discretionary income. Theyre designed to make your student loan debt more manageable by reducing your monthly payment amount.
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Make A Repayment Strategy
Getting rid of your student loan debt requires strategic planning. First things first: get a handle on your balance and interest rate, then craft a payoff plan.
In order to do that, youll need to revisit your budget. Go item by item, and see if there are expenses you can cut and redirect toward your loan payments. Any extra cash you can free up can go directly to reducing your balance. Carpenter says the best way to make a dent in your student loan balance is to make additional payments on top of your minimum amount due. Thats what Kuo did. He figured out how much he was accruing in interest, and paid extra toward his principal every month.
One silver lining in all of this is that it has made all student loan borrowers take a good, hard look at their personal situations, says Matt Carpenter, CEO of College Funding Services, a student loan consultation company in Massachusetts.
Once youve gone through your budget, consider two of most popular payoff strategies: the debt snowball and debt avalanche. If you go with the debt snowball method, youll make minimum payments on all debts except the account with the lowest balance. With the debt avalanche method, youll focus first on the account with the highest .
Bankruptcy Provides Limited Debt Relief For Private Student Loan Wage Garnishment
Bankruptcy is one option for solving certain kinds of debt problems. This form of debt relief may be limited for student loan borrowers though since itâs difficult to discharge private student loans in bankruptcy. These student loans are loans extended by private lenders that are not backed by the federal government. You must show an undue hardship to discharge student loans. This may be a financial hardship.
Unlike federal loans, private loans don’t have many provisions for relief when you miss any payments. Unlike federal borrowers, private borrowers usually canât take advantage of income-based repayment plans, forbearances, and deferments.
For some borrowers, payments for student loan debt can be successfully managed through a Chapter 13 bankruptcy case. This type of bankruptcy allows you to reorganize your debts in a three- to a five-year repayment plan. You will need to file a Chapter 13 case if you make too much money to qualify to file a Chapter 7 case. Filing a Chapter 13 can help you deal with your debts and reach goals that you would not be able to accomplish through a Chapter 7 case.
If a Chapter 13 case isnât the best option for your situation generally, filing a Chapter 7 bankruptcy case can help eliminate other debts, which might free up money you can use to pay your student loans. Chapter 7 bankruptcy is a powerful tool that allows you to once and for all erase many types of debts, including credit card debt, medical debt, car loans, and payday loans.
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Which One Is Better
Most borrowers do not have a right to choose which option they want. In most cases, the possibilities are noted in loan terms. You might qualify for deferment, while forbearance can be inaccessible or vice versa. First, you need to check your loan agreement.
Second, each option is granted under specific rules. For example, if you have already graduated, it can be hard to get a deferment.
Besides, both options have advantages and disadvantages. On the bright side, you do not repay the debt for a few months and focus on your finances. During this time, you can think of a way out of the debt struggles. In this sense, deferment can be more desirable as it can last for four years.
On the other hand, during the period you do not repay the debt, loan interest payments will continue accumulating. Hence, you might end up paying more for your student loans in the long term. We understand that these options do not reduce your debt obligations like private student loan forgiveness should do, but they are worth trying as you do not have many opportunities.
Create The Proper Repayment Plan For Your Private Student Loans
If you have private student loans, the key to making them affordable is to create the proper repayment plan for all of your student loan debt. This isn’t always easy, and each person will have a different preference, but here’s how to think about it.
First, handle your Federal loans. These loans typically have more repayment options, and you might benefit from setting up an income-based repayment plan. These plans will lower your monthly payment to 10% or 15% of your discretionary income. That can be a huge help in being able to afford your student loans.
Once you’re set on your Federal loans, move to your private loans. For your private loans, you need to . Remember, the snowball is about starting with your smallest balance first. The avalanche is about starting with your highest interest rate first.
Mathematically, the highest interest rate first is usually better. But mentally, getting rid of some small private student loans first can be a huge early win.
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