Student loan debt is a growing crisis in America. Over 44 million borrowers owe more than $1.5 trillion in student loan debt, with the average borrower owing over $30,000 . As more borrowers struggle to keep up with payments, debt restructuring options are becoming increasingly important. Here are some of the main debt restructuring options available to federal and private student loan borrowers.
The federal government offers several repayment programs to help struggling borrowers manage their federal student loan debt:
Pros of federal repayment programs:
These federal repayment programs are available for federal Direct Loans and FFEL Loans. Some Perkins Loans also qualify.
In addition to the above repayment programs, the federal government also offers student loan forgiveness programs that will forgive remaining student loan balances after meeting certain requirements:
|Income-Driven Repayment (IDR)
|Payment capped at 10-20% of discretionary income. Forgiveness after 20-25 years
|Federal student loans
|Public Service Loan Forgiveness (PSLF)
|Forgiveness after 10 years of payments and public service employment
|Federal Direct Loans
|Teacher Loan Forgiveness
|Up to $17,500 forgiveness after 5 years teaching in low-income school
|Federal and Perkins Loans
While these programs provide relief, borrowers report difficulties taking advantage of them . The complex rules and paperwork make them hard to access for struggling borrowers.
For borrowers with private student loans, options are more limited but some relief may still be available:
These options provide temporary relief from high payments but do not offer the deep long-term debt restructuring and forgiveness that federal loans offer.
For borrowers facing default, debt settlement may also be an option. The lender agrees to accept a discounted lump sum payment (often 30-50% of balance) as payment in full. This option comes with credit score implications and tax liabilities on the forgiven debt.
Navigating these student loan debt restructuring options is complex. These government resources and non-profits can provide guidance:
They can help borrowers understand their options, manage loan servicers, and access relief programs. Consulting a student loan lawyer can also help build a customized debt repayment strategy.
Over 44 million Americans are struggling with $1.5 trillion in student loan debt. Thankfully federal and some private repayment programs exist to help borrowers manage this debt. Income-driven plans, extended terms, deferment and forbearance provide payment relief in the short term. Forgiveness programs like PSLF provide longer term debt restructuring but can be difficult to obtain. While not perfect, these programs remain the best options for most borrowers facing crushing student loan debt.
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