There are many different options depending on what types of loans you have, your financial scenario and your goals for paying off your loans.
Public Service Loan Forgiveness
School Closure Discharge
The Public Service Loan Forgiveness Program is a federal program designed to forgive student loan debt for employees of certain public and nonprofit jobs. It erases whatever remains of your federal student loans after you’ve made 120 qualifying payments while working for an eligible organization.
For most borrowers, this means you’ll need to work for 10 years before receiving loan forgiveness from PSLF. Of course, after 10 years of repayment, your loan balance might be a lot smaller than it was when you started. But if you owe a lot in student loans, the forgiveness that comes from PSLF could still be a huge financial relief.
The specific requirements of the program state that you must not have completed all of your courses required for graduation, and that you must have either still been attending the school at the time it shut down, or within 120 days of the official closure date.
If you satisfy those requirements, the Discharge approval is basically an automatic process, and one that’s relatively easy to get, so I would highly recommend that you pay close attention to this post and follow the application instructions closely, because doing so gives you a really good chance for having your student loan debt entirely forgiven.
1. Veterans who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition qualify for this discharge without having to provide additional documentation from a doctor. Veterans that obtain a discharge in this way are eligible for a refund of any student loan payments received by the Department of Education after the effective date of the V.A. determination, or
2. If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within 5 to 7 years from the date of your most recent SSA disability determination, or
3. You can submit certification from a doctor that you are totally and permanently disabled. You must do this within 90 days of the date of the doctor’s signature on the form. Tell your doctor to be prepared to get follow-up letters and requests from the loan holder and Department of Education. The Department says that it is sending notices to borrowers to alert them if their doctors are not responding to requests for additional information. If you get this notice, you should contact your doctor as soon as possible.
Income Driven Repayment
There are four separate income-driven repayment plans available to federal student loan borrowers:
Revised Pay As You Earn (REPAYE)
Under a REPAYE plan, your payment is capped at 10% of your discretionary income. For undergraduate loans, your terms are extended for 20 years. If any of your loans were for graduate school, your repayment term stretches to 25 years.
Pay As You Earn (PAYE)
With PAYE plans, your payment is 10% of your income but never exceeds what your payment would be under a standard repayment plan. Your repayment term is 20 years.
Income-Based Repayment (IBR)
If you’re a borrower after July 1, 2014, your payment is capped at 10% of your income, and you will make payments for 20 years. If you borrowed before that date, your term will be 25 years.
Income-Contingent Repayment (ICR)
On an ICR plan, you pay the lesser of either 20% of your discretionary income or what you would pay with a fixed plan over twelve years. If you qualify for the 20% option, you can make payments for up to 25 years.
If your loans are not completely paid off at the end of the repayment term, the remaining balance is forgiven on all four of these plans.
Borrowers Defense Claim
You may be eligible for borrower defense to repayment forgiveness of the federal student loans that you took out to attend a school if that school misled you, or engaged in other misconduct in violation of certain state laws. Specifically, you may assert borrower defense by demonstrating that the school, through an act or omission, violated state law directly related to your federal student loan or to the educational services for which the loan was provided. You may be eligible for borrower defense regardless of whether your school closed or you are otherwise eligible for loan forgiveness under other laws.
If you are eligible to receive federal student loan forgiveness, you may be able to have all or part of your outstanding federal student loan debt forgiven, and you also may be reimbursed for amounts you have already paid on those loans.
You will only be eligible for this type of federal student loan forgiveness if your school’s misleading activities or other misconduct directly relate to the loan or to the educational services for which the loan was provided. You will not be eligible for this type of forgiveness based on claims that are not directly related to your loan or the educational services provided by the school. For example, personal injury claims or claims based on allegations of harassment are not bases for a borrower defense application.
Please note that eligibility for federal student loan forgiveness is limited to federal student loans taken out for payment to the school relating to your borrower defense application. If you would like to apply for borrower defense against multiple schools that you attended and for which you took out federal student loans, you must submit separate applications for each school of attendance.
Private Student Loans
You may be able to settle your private student loans for less than what you owe. Many unsecured debts have been settled for less than what is owed.
Unlike Federal loans, private are similar to credit cards and medical bills and many times the creditor may be willing to negotiate much less than what is owed. This isn't for everyone but in some cases, you may be able to take advantage of this fresh start program.
When you refinance federal student loans, you give up benefits such as income-driven repayment plans and loan forgiveness, so it’s important to analyze if the risk/reward of refinancing makes sense.
Refinancing your federal student loans may get you a better interest rate if you qualify, and save you money, but how much could you save by refinancing? Be sure to run the numbers with a student loan refinancing calculator.
Student loans most likely to benefit from refinancing include Grad PLUS and Parent PLUS loans, which bear relatively high interest rates ranging all the way into the double digits, depending on the year you obtained them.
Even if you started out on a certain plan, you don’t have to stick with it forever. Instead, feel free to adjust your plan as your circumstances and goals change over the years.
By exploring all your options, you can find the best student loan solution for you, and move towards a debt-free life.