Student loan debt has become a hot topic for a couple of reasons. First, it impacts the financial welfare of many students and their families. In 2012, graduating students owed, on national average, $29,400 in school loans. And that's just for an undergraduate education. Imagine the additional cost of a master's or doctorate degree (after all, an undergraduate degree is becoming the new high school degree). This is a dangerously high figure when you also factor in the unemployment, or underemployment, rate for many recent graduates.
Secondly, this situation is slowing the recovery of our national economy. There is, after all, a trillion dollars in outstanding student debt, and defaults are on the rise. Nearly 12% of all school loans were delinquent by the end of the 3rd quarter of 2013. "Delinquent" is, by the way, defined as no payment for at least 90 days.
Unfortunately, most of these loans are federal, and for that reason, there is a sinister recourse when these loans go from "delinquent" to "default" (more than 270 days late). The government can, and does, simply grab the student's tax refund, or 15% of their disposable income, from their paycheck, or both. No lawsuit or notice is required. So, there is no warning. One day, out of the blue, it just happens. And, unfortunately, unless action is taken, this collection grabbing continues until the loan plus interest, plus collection fees up to 25%, is paid in full. A pretty grim, and ironic, picture for a young person trying to better their situation with a college degree.
So, what, if any, options are there for student loan debt repayment? Well, it's complicated. However, there usually are options which apply. This is determined by the kind of loan, how long it has gone unpaid, and the graduate's income and circumstances. In short, there are 6 different options: 2 based on income, and 4 others based on the balance of the loan. Figuring out which of these options might apply, and whether they would improve the debtor's situation, takes a little time and consideration. But, in many cases, at least one of these options may greatly benefit the graduate's financial situation. Bankruptcy, by the way, is rarely an option.
A strong word of caution: Don't try this at home, and beware of Internet "expert negotiators"! A quick Google search reveals that there are numerous agencies advertising quick fixes (always a red flag).
If you have questions or want to review our law office's approach to these issues, call or e-mail us.