Now that student loan debt has reached $1.7 trillion, it’s even more than it used to be. Here’s what to do if you have a lot of debt from your college loans.
How old am I? I went to college, but I haven’t been able to find a job I like since. I now owe more than $208,000 on my student loans, but I only make $47,000 a year. The job I have is one that I don’t like.
I get up and hate life every single day. If you don’t live your own life, you don’t know what it’s like to go to college. As a result of losing my job, I had to file for Chapter 13 bankruptcy years ago. Then it changed to a Chapter 7 bankruptcy because I only earned money from my husband.
In the end, I was able to pay off $40,000 worth of credit cards and some medical debt. I was in full default on my student loans. If I have money, I won’t be able to buy a house in my own name. Make a plan.
There are many people who have mental health problems because of debt. The first thing to know is that you’re not the only one. In a recent Prudential survey of people with $5,000 or more in debt, 42 percent said their student loan debt caused them to have a lot of mental and emotional stress. This was even more than other types of debt.
A certified financial planner in Houston, Grace Yung, says that money problems can make people depressed and stressed out to the point where they don’t want to do anything.
There is no shame in this… To find your “spark” and work through your stress, you might want to talk to a mental health professional. For your finances, we asked experts what you and other people who have student loan debt should do, from rehabilitating loans to refinancing, to loan forgiveness, to income-based repayment plans, and more.
There are some problems with your loans. First, let’s talk about this. People who owe money but don’t pay it back may not have to pay back their debts right now because of COVID-19 relief measures.
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Emergency relief for federal student loans is set to end on May 1, 2022, when the COVID-19 emergency relief ends. Mark Kantrowitz, who wrote the book “Who Graduates from College?” says that too.
You should look into whether you can get back on track with these loans, which would remove the debt from your credit report. Many people who have defaulted on their loans will be able to get them back, he says.
People who owe money and don’t pay their debts after a pause in the collection process could be subject to wage garnishment and tax refund withholding.
Borrowers make full, voluntary, reasonable, and affordable monthly payments on their loans for nine out of 10 consecutive months as part of a loan rehabilitation agreement. If they do this, the debt will be removed from their credit report.
This is a once-in-a-lifetime chance, so if the borrower again defaults, they won’t be able to fix the loans again.
Check to see if the payments you don’t make during the COVID-19 relief period will count toward your nine payments: There are nine payments you must make before your loan can be rehabilitated.
If you haven’t made them or been given credit for them, you’ll need to make the remaining payments to finish it. You should “either get into an income-driven repayment plan or get a deferment or forbearance if you are unemployed or struggling financially.” Kantrowitz says this is a good idea if you’re trying to get your loans back.
If you want to cut down on your monthly loan payments, an income-driven repayment plan is worth looking into. This plan bases your monthly payment on how much money you make, so those with lower incomes will pay less each month.
These, on the other hand, are usually only available with government loans. Income-driven repayment plans have another benefit: if the borrower’s loans are in the Direct Consolidation Loan program and the borrower works full-time in a public service job, the remaining debt will be forgiven after 10 years of payments.
Keeping up with your new loan payments is the next thing you need to do. This way, you can either earn more money or cut back on expenses to pay off the debt.
Asking for a raise, working extra hours, or working a part-time job at night and on the weekends are all ways to earn more money. Things that haven’t been used for a long time should also be sold, says Kantrowitz.
Finally, it’s not impossible to reopen the bankruptcy case and try to get rid of student loans. This will require an adversary proceeding, which you can learn more about here. The borrower will have to show that this will cause them undue hardship, which is a very high standard.
But if the loan payments are higher than the borrower’s income, and the borrower doesn’t have a good chance of making more money and has tried other ways to deal with the debt, the borrower might be able to get a full or partial discharge of their student loans, says Kantrowitz.
Make sure you know that a bankruptcy settlement could have tax consequences: If a borrower gets a student loan settlement from, say, a Chapter 7 filing, the amount of debt that is canceled is considered income by the IRS.
If the borrower is insolvent, the IRS may forgive all or part of the tax debt, says Kantrowitz. If the IRS doesn’t forgive the tax debt, there are other ways to pay it.
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One way to make an offer of compromise is to file IRS Form 656, says Kantrowitz. Form 9465 lets you ask the IRS for a payment plan that lasts up to six years. Because the tax debt is less than the student loan debt that was forgiven, the payment plan may not be as burdensome as the student loan debt payment plan.
Refinancing your student loans doesn’t seem like the best option for you because you have federal student loans and may need to get on an income-based repayment plan.
However, if you have private student loans, refinancing them could be a good option for you because rates are very low right now.
