I hate to be the bearer of bad news but your student loan is not just going to vanish into thin air. That’s not the way debt of any kind, including a student loan, works! Yes there are specific cases in which federal student debt is forgiven.
But, at this point, there is no program for private student loan forgiveness. The confusion and the erroneous claims stem from the fact that Sallie Mae (SLM Corporation) not only offers private student loans but also services federal student debt.
This brings us to the all-important question- What if you are struggling to repay your student loan and there is a real risk that you may default or have already defaulted
While forgiveness may not be an option for everybody, there are other methods to ease and manage student debt. So, continue reading to know about the various approaches that you can take to handle Sallie Mae loans, both private and federal.
Student loans don’t just disappear!
If you ever spilled chocolate syrup on your white shirt, you know how your love of Hershey’s called for a lot of hard work at laundry time. Well, student loans are just like that. Even when forgiveness is an option, it does not come cheap nor immediately.
For instance, assuming that you are a civilian, and not a veteran or an active military member, there are three conditions to qualify for a federal program known as Public Service Loan Forgiveness (PSLF):
1. Only federal Direct Loans are eligible for PSLF. However, the Federal Family Education Loan Program loans and Perkin loans, which have been consolidated with a Direct Consolidation Loan, are also eligible.
2. You will have to make 120 payments and each of these has to be made under qualifying repayment plans while you are employed full-time with one of the employers/organizations listed below. Every payment has to be for the full amount due, as shown in your monthly statement and it has to be made within 15 days of the due date.
Any payments made before you consolidate the loans on the Direct Consolidation loan, do not count. Similarly, payments made when your loan is in deferment, in forbearance, in grace–period or in-school status, do not count.
3. You will have to work full time (whatever that is according to your employer or for at least 30 hours a week) to qualify. This applies when you are holding one job. For two or more part-time jobs, as long as you clock a combined average of 30 hours/week, you will be eligible. Although your job title does not matter, who you work for does. Here is a list of organizations that would qualify you:
- Any government agency, whether federal, state, tribal or local.
- Non-profit organizations that don’t get tax exemptions. You will find a list here studentaid.gov
- Non-profit agencies 501(c)(3) that are tax exempt.
- Volunteer work for Peace Corp or AmeriCorp.
Apart from the PSLF program,Teacher Loan Forgiveness also applies to federal student debt as long as you spend 5 consecutive and complete academic years teaching full time at a low-income educational establishment.
However, this will only cut down your student debt by $17,500. There are a few other forgiveness programs that also apply to federal student loans, but the conditions for these are hard and rare to meet.
But Sallie Mae Loan forgiveness is not possible- Now, what?
Although it is not possible to have debt wiped off magically with a forgiveness program, you can make the repayment more manageable. There are several options available, but in a nutshell, they all, in some form or manner, increase the loan term while decreasing the monthly obligations towards it.
Do not underestimate the efficacy of these programs! They are proven to reduce instances of default. But Sallie’s been playing it dirty, so don’t expect to hear about them from SLM Corporation. In fact, the lender was recently pulled up for not advising clients of these options, which would make their life and their finances far more manageable.
In case you are wondering why the lender would not be interested in collecting its money? Make no mistake; they do want to collect. But they want to take the cake and they want the crumbs too. Now, these are no small crumbs.
Collections from student loan defaulters are big business for Sallie; almost as big as the legit interest payments. To get a gist of what I am talking about, chew on this- They charge defaulters a 25% collection fee. Plus, they charge an additional 28% as a collection commission, even when they are collecting for themselves.
That is a cool 53% made without lending a penny for it! So, do you actually believe that they have the impetus to tell you about any repayment or debt management programs that will make it easier or simpler for you to meet your loan obligations?
Repayment plans can come to your rescue
There are four of these, and each is meant to make it easier for you to meet your debt obligations. However, consider the pros and cons of each carefully, as choosing the right plan can make a huge difference to your current and future financial health. Here is what is available:
- The most frequently availed repayment plan, the IBR will bring down your monthly payments to a range of just 10%-15% of your discretionary income. You will have to make payments for 20-25 years at which time the remainder of the debt will be forgiven (range for the percentage of income and loan term based on when the loan was taken).
- While the other three plans in the list have an initial income requirement, the ICR is free of such conditions. So, just about anybody can avail of the plan as long as they are eligible for it. The ICR brings down the monthly payments to around 20% of your discretionary income and the loan is forgiven after 25 years of consistent payments.
- Almost the same as the IBR plan, PAYE also brings down your monthly loan payments to 10% of your discretionary income, and the remainder of the debt is forgiven if you are consistent with your payments for 20 years. Also known as the Obama Student Loan Forgiveness program, only loans are taken out after 2007 are eligible for PAYE.
Reprieve for the time being with student loan deferment!
This is one way to take some time off of your loan repayments while you sort your finances. This option works for those who have completed their course and are now waiting to get a job. Understandably, it is going to be hard for you to start repaying your loans, immediately after college.
By deferring your loan, you can either reduce the monthly outgoing or you can stop it completely for a fixed period. The best part is that this option is available for Sallie Mae Loans. Depending on your level of education, this is what you can get:
- Undergraduate and graduate students can get reprieve in the form of lower payments for a period of 48 months.
- Interns and those in residency programs can ask to stop the payments completely, at a time, for 12 months. You can get 4-5 such deferment slots of 12 months each through the life of the loan.
The thing to remember when taking this option is that your interest meter is kept running. What this means is that the total cost of the loan will be higher for you than what it would have been without deferment.
Short term help with forbearance
This option is meant for borrowers who have been out of school for a while and who have fallen on hard times and could use a bit of support for a few months. Sallie Mae has a very simple procedure to apply for forbearance. You simply have to call the lender and ask to set you up on the program. It will cost you $50/loan but never more than a total of $150.
Also, known as good faith payment, at one time, you can only stop the payments for a period of 3 months. To reenter forbearance, you have to wait for 6 months. However, Sallie Mae is now offering an alternative in the form of interest-only payment for 6 months. Although this will not put a complete halt on those monthly payments, they will be reduced to a small percentage of the actual outgoing and you get 3 months more than what you’d get with forbearance, to sort out your financial affairs.
Refinancing the loan to make it more manageable
This option works when your interest rates are very high and that is the aspect of repayment that is making it hard for you to handle the loan. It also goes without saying that choosing to refinance your current loan with a lower interest rate option will greatly reduce the total cost of your debt over its lifetime
That said, at this point, you cannot refinance your loan directly with Sallie Mae. That is – you cannot seek another loan from Sallie Mae to refinance your current loan. However, you can refinance with Navient, if you are already their customer.
Now, the most important thing to ponder over when you consider refinancing your Sallie Mae Loan is if this would be the right solution for you. Typically, refinancing only works if you aren’t already having trouble making your loan payment. If the situation has already come to a head and there is a real risk of default, refinancing may not be the right option for you. Moreover, to refinance an existing loan, you will need good credit.
Also, even when refinancing is likely to be the right fit for you, it is imperative to weigh the pros and cons of the existing loan and the new loan that you intend to take out. For instance, Sallie Mae does offer a few distinct advantages such as:
- They allow you to postpone the repayments for some time.
- They offer a program to go with interest-only payments.
- They allow co-signer release after 12 months of payment.
That said, the lender offers both variable and fixed-rate loans and the range of interest rate is 4.75% to 12%. Usually, the effective rate comes to around 8%. So, if you get a lender that is willing to refinance at 5%, you could save a significant amount on the total cost of the debt.
Is bankruptcy an option at all?
Yes, it is available. BUT, it is very hard to have student loans discharged. Also, one of the reasons why bankruptcy is considered the absolute last resort is because of its implication on your creditworthiness. You are looking at least 7-10 years of credit-ramifications.
This simply means that you will not be able to get any form of credit, including credit cards, for almost a decade of your life. Also, depending on the state that you live in, your creditworthiness can be checked and used by prospective employers in making their hiring decision. In other words, bankruptcy creates just as many issues as it sorts.
The moral of this story…
By now, you must have gauged that while debt management is possible and is an effective way to tackle your student loan woes, there is no one-size-fits-all solution to debt problems. For a debt management plan to work, it has to be tailored to suit your specific circumstances.
Our credit counselors have the experience to chalk up such a plan that will be just right for your requirements. Student loan repayment problems are not new nor are they uncommon. In fact, one in four Americans is currently struggling with student debt.
We have helped hundreds of individuals who had already defaulted or were on the verge of defaulting to turn things around and get their financial matters and their life back on track. From my experience, the one thing I can tell you is this- Running away from your debt is a surefire way to set yourself up for an ambush.
We can help you to avoid the situation where your debt obligations get the better of you and make your life impossible. But, that is only possible if you take that first step and get in touch with us. After all that, need I say- Get in touch with us right away?
