What To Do When You Can t Pay Your Student Loan Debt

Student loans are becoming a problem for more college graduates or more particularly the ability to pay them. Higher college tuition and fees has led to larger student loan debts with commensurately higher monthly payments. This can be a heavy burden for a young person trying to make their way into adult life. But it s a much bigger problem for recent grads who are either unemployed or under-employed.

If that s the situation you find yourself in, there are some options that can help.

Photo by Svadilfari via FlickrStudent Loans Aren t Like Other Debt

What makes student loans particularly difficult to deal with when you can t afford repayment, is that you can t make them go away like you can with other debt types.

Most loan types can be discharged in bankruptcy, settled for less money or negotiated in some other way. Student loans however are insured by the US government and if you can t repay according to the original terms, the consequences are much greater.

Your tax refunds can be seized to repay the debt, or your wages can be garnished. If you owe a very large amount, this can result in a burden that will last for many years. In the normal course of business, the only way to get out of a student loan debt is to pay it off. The best you can hope to accomplish otherwise is a reduction in payments and possibly a partial forgiveness of the loan balance.Income-Based Repayment Plans

If you can t pay your student loan debts due to either low income or unemployment, there may be help from the federal government in the form of an Income-Based Repayment Plan, or IBR for short. The program started in 2009 for just this purpose.

According to the IBR website, the plans have the following features:

  • based on your income and family size;
  • adjusted each year, based on changes to your annual income and family size;
  • usually lower than they are under other plans;
  • never more than the 10-year standard repayment amount; and
  • made over a period of 25 years.

The payments are based on 15% of your discretionary income, and can be extended out up to 25 years. The plan also has provision for debt forgiveness after 25 years of repayment, but that does come with other requirements. The forgiveness feature can be accomplished in as little as ten years for certain public service organization employment.

Not all student loan programs are eligible for an IBR, but there are other alternatives as well.Other Ways to Deal with a Student Debt Problem

If you can t qualify for an IBR, or if you just want your student loan debt to be paid as soon as possible there are certain steps you can take on your own. How much money you owe on your loans will have a major impact on how far you go in your efforts.

Keeping your expenses low is the most basic step, especially if your student loan debts are large. This may mean having a shared housing arrangement, driving a very inexpensive car, and forgoing luxuries like restaurant meals, vacations and travel, and high-priced clothing and entertainment equipment. You may have to do that for as long as it takes to payoff your student loans.

You can also use something like the debt snowball . If you have several debts, like a car loan or several credit cards, it will be easier to begin paying off your student loans when the smaller loans have been paid off first. The money that you save from the monthly debt repayments will lower your cost of living and provide you with extra cash to pay toward your student loan debts.

As an alternative, or maybe even as a supplement, you can look for ways to earn some extra income that will be dedicated to the repayment of your student loans. They can include a part-time job, a side business, or working your way toward a promotion or into a job that offers commission and/or bonuses in addition to your regular salary.Work to Pay it Off Sooner

There s sometimes the thinking with student loans that it s okay to keep them outstanding because the interest rate and payment are low, at least in comparison with the balance owed. That may be okay as long as you have a job and you re making good money, but a future job loss or pay cut could change that in a hurry.

For that reason you should want to payoff your student loan debt as soon as possible. Student loan debt is still debt, you should want to make any debt go away as soon as possible.

How are you dealing with pain your student loan debts?

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Tax-hike ‘mandate’ sparks partisan debate

WASHINGTON (CNNMoney) — As Congressional leaders and President Obama met for talks about ways to avoid the fiscal cliff, party leaders redefined their hard lines on tax hikes for the wealthy.

Rep. Chris Van Hollen of Maryland, a key member of the House Democratic team, said Friday that President Obama’s re-election leaves no doubt that Obama has a mandate to raise taxes on the rich.

But top Republicans, including Illinois Rep. Peter Roskam, disagreed. ‘If the president had a mandate, Nancy Pelosi would be the next Speaker of the House, and that’s not going to happen in January,’ he said. Both Van Hollen and Roskam spoke at a Washington forun sponsored by the Peterson Foundation.

Neither Van Hollen nor Roskam were in the room with President Obama to talk about the fiscal cliff, which starts to take effect Jan. 1, and includes expiration of the Bush tax cuts and $1.2 trillion worth of spending cuts over a decade. But their bosses, House Speaker John Boehner and Democratic leader Pelosi, were in attendance, along with both parties’ Senate leaders.

The crux of the controversy is whether to extend the portion of the Bush tax cuts that apply to individual income above $200,000 and married couples’ income above $250,000. If they were allowed to expire as scheduled on Dec. 31, the top two income tax rates would increase to 36% and 39.6% next year, up from 33% and 35% this year. Investment tax rates would rise too from their current level of 15%.

White House economic adviser Gene Sperling, who was at the White House talks, reiterated the president’s ‘clear’ position: ‘He’s not going to sign an extension of the tax cuts for those over $250,000,’ he said during the forum.

Roskam said Republicans don’t feel obliged to give in the way the president is calling for.

He said Republicans want to know more about how the president will define who is wealthy. In particular, Republicans want consideration for small business owners who file company taxes through their own individual tax returns, which might qualify them as wealthy.

And he said Republicans will push the president for more specifics on spending cuts.

‘The president has been litigating the tax question, but there hasn’t been any discussion substantively about where the cuts are,’ Roskam said.

One area that all parties seem to agree is that going over the cliff and allowing the tax hikes and spending cuts to kick is not a top choice.

Sperling called it ‘economically irresponsible,’ and Roskam called it a ‘bucketful of crazy.’

First Published: November 16, 2012: 11:29 AM ET

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