Student Loan Debt Relief
Much of the sensationalism around media coverage of student loan debt derives from the staggering amount of debt. As Forbes reports, student loan debt has reached $1.2 trillion, with $1 trillion from federal sources. To put this amount in national context, consider that total federal debt is approximately $16.7 trillion, which means that student loan debt accounts for 6 percent of it. Student loans are now the second highest ranking consumer debt, with mortgages in first place.
Student Loan Debt Relief Programs
The following student loan debt relief programs can help qualifying borrowers better manage repayment:
- Public Service Loan Forgiveness
- Income-Based Repayment Plan
- Pay As You Earn Repayment Plan
- Income-Contingent Repayment Plan
- Income-Sensitive Repayment Plan
- Service Members Civil Relief Act
Public Service Loan Forgiveness
This relief program was the result of a congressional effort in 2007 to address the burden of student loan debt for graduates interested in public service work. Program requirements are as follows:
- Only federal loans are qualified.
- Borrowers must work for a qualified public service organization.
- While employed full-time, borrowers must make 120 payments.
- Borrowers must be enrolled in a qualifying repayment plan, such as Pay As Your Earn.
- Borrowers must track their payment history. When they believe they have made 120 payments, they apply for loan forgiveness.
Income-Driven Repayment Plans
These plans are part of federal efforts to provide student loan debt relief based on a strategy of tying the monthly amount due to the income the borrower earns. Common features of all three plans are:
- To apply, borrowers must complete the Income-Driven Repayment Plan Request online at StudentLoans.gov or contact their loan service provider for a paper application.
- Only certain federal loans are eligible
- Any remaining loan balance after the repayment period ends is forgiven.
- Borrowers may use the Repayment Estimator tool to determine the monthly amount due.
Specific details of each of the plans are as follows:
Income-Based Repayment Plan
- 10 or 15 percent of discretionary income
- 20- or 25-year repayment term
- To qualify, the payment due under this plan must be lower than the payment that would be due under the Standard Repayment Plan, with a 10-year repayment term.
Pay As You Earn Plan
- Usually 10 percent of discretionary income
- 20-year repayment term
- To qualify, the payments due under this plan must be lower than the payment that would be due under the Standard Repayment Plan, with a 10-year repayment term.
- The lesser of 20 percent of discretionary income or the payment that would be due under a fixed repayment plan, over a 12-year term, adjusted to borrower’s income
- 25-year repayment term
Income-Sensitive Repayment Plan
Borrowers with FFEL loans, which were phased out from new lending in 2010, may be eligible for this plan.
Service Members Civil Service Relief Act
As the Huffington Post reports, the GI Bill does not cover student loan debt, which service members may already have; however, service members may be eligible for the Public Service Loan Forgiveness Program. In addition, the Service Members Civil Service Relief Act caps the interest rate on existing federal and private loans at 6 percent while the borrower is on active service.
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