If you feel like you’re drowning in student loan debt and need help managing or getting rid of it, you’re in luck. In this article, we rounded up six potential options to deal with overwhelming student loan debt, including loan forgiveness programs, loan discharge programs, loan settlement options, repayment plans, refinancing options, and bankruptcy.
As of 2023, student loan debt has spiked to a whopping $1.75 trillion in the United States. The majority of the student loan debt (about $1.6 trillion) total comes from federal student loans, and the remainder comes from private student loans.
Student loans are a special category of debt with unique rules. Each student loan debt relief option has its own eligibility requirements. Figuring out which option(s) you may want to pursue can feel confusing, but this article is here to help!
Option 1: See if You Qualify for a Student Loan Forgiveness Program
Many borrowers qualify for loan forgiveness programs. Perhaps the most well-known student loan forgiveness program is the Public Service Loan Forgiveness Program (PSLF). But there are also programs specific to teachers and to healthcare workers.
Do You Qualify for Public Service Loan Forgiveness (PSLF)?
If you work in public service or for a qualifying nonprofit, you can take advantage of PSLF to lower your monthly payments under an income-driven repayment plan and then have the rest of your remaining balance forgiven after 10 to 25 years.
To qualify for the PSLF program, you must meet all three of the qualifying criteria:
Be employed by a U.S. federal, state, local, or tribal government, or not-for-profit organization
Work full time at one of the above-mentioned agencies or organizations
Have a federal Direct Loan through the U.S. Department of Education or consolidate other federal loans into a Direct Consolidation Loan
The Public Service Loan Forgiveness program forgives the loan balance of qualifying loans after you have made 120 qualifying payments under an income-driven repayment plan.
If You Don’t Qualify for PSLF, Try Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
To qualify for the Public Service Loan Forgiveness program, you usually need to plan ahead to make sure you make the right number of payments and are on the right type of repayment plan. But many borrowers struggle to understand the burdensome administrative requirements of PSLF. This is why the government created the Temporary Expanded Public Service Loan Forgiveness program (TEPSLF).
Check out TEPSLF if you failed to make your loan payments through a qualifying PSLF payment plan.
Do You Qualify for Other Student Loan Forgiveness Programs?
Three other big student loan forgiveness opportunities include programs designed specifically for teachers and healthcare/public service workers.
If you’re a teacher or education worker, check out The Ultimate Guide to Student Loan Forgiveness Programs for Teachers to learn more about your student loan forgiveness options.
If you work in healthcare, check out The Ultimate Guide to Student Loan Forgiveness Programs for Healthcare Workers to get the full scoop on your options.
What’s the Difference Between Student Loan Forgiveness and Cancellation?
Loan cancellation means that you will no longer be required to repay some or all of your loan. Some student loan debt is eligible for cancellation. For example, if you have a Perkins Loan, you may be eligible to have all or most of your loan canceled based upon the length of your employment or volunteer service.
The main difference between loan cancellation and loan forgiveness is the amount taxed at the time of cancellation or forgiveness. Generally, when a loan is canceled, you’ll remain responsible for paying taxes on the amount canceled during that tax year. When a loan is forgiven — and the loan is tied to a forgiveness program such as PSLF — you will not be responsible for paying taxes on the amount forgiven during that tax year.
Option 2: Apply for a Student Loan Discharge Program
A student loan discharge is similar to student loan forgiveness and cancellation in that it provides debt relief. However, to get your student loans discharged, you must meet certain eligibility requirements.
Apply for a Total and Permanent Disability Discharge
You may qualify for a discharge of your federal student loan(s) if you can prove total and permanent disability. You must prove you have a total and permanent disability by providing documentation from your physician, the Department of Veterans Affairs, or the Social Security Administration. You must send proof from one of these sources along with an application for discharge to your lender.
You have to be able to prove you are no longer able to work due to a medical condition. You may not qualify for total permanent disability if there are treatment options available. Because of this, it can be difficult to claim a total and permanent disability. That said, this program is important to help folks with a disability get financial relief.
Apply for a Closed School Discharge
If your school closes while you are enrolled as a full-time student, or immediately after you withdraw, you can apply for closed school discharge.
Apply for Student Loan Discharge Due to Death
If a student loan borrower passes away, their loans are discharged once proof of death is submitted to the lender. This also applies to PLUS loan borrowers if the person they took the loan out for passes away.
Apply for Other Types of Student Loan Discharge
Some types of student loan discharge programs aren’t very common, but if these situations apply to you, they can be helpful:
False Certification Discharge: Discharge can happen if the school you attended/are attending falsely certified your eligibility for federal student aid.
Borrower Defense to Repayment Discharge: Discharge can happen if the school you attended/are attending made misleading statements to you that you relied on when taking out your federal student loan(s).
Unpaid Refund Discharge: Discharge can happen if the school you attended/are attending was supposed to refund your lender for a part of the academic period but you did not attend schooling during that period.
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Option 3: Change Your Student Loan Repayment Plan
After you graduate and the grace period for repaying your loan ends, you’ll be put on the Standard Repayment Plan by default. Because this only has a 10-year repayment period, your monthly payments may be unaffordable. If you want to get rid of your federal student loans because you simply can’t afford your monthly payment, look into other repayment plans first.
Fortunately, there are several repayment plan options to fit your budget if you have federal student loans. If you have private student loans, you probably won’t have as many repayment options, but you may be able to refinance your loan to lower your monthly payment. We’ll cover refinancing in the next section.
Are You Eligible for an Income-Driven Repayment (IDR) Plan?
There are four main income-driven repayment options for federal loans:
Income-Based Repayment (IBR) for Direct Loans, federal Stafford Loans, PLUS loans, and Direct Consolidation Loans
Income-Contingent Repayment (ICR) for Direct Loans, Direct PLUS loans (made to students), and Direct Consolidation Loans
Pay As You Earn (PAYE) for Direct Loans, Direct PLUS loans (made to students), and Direct Consolidation Loans
Saving on a Valuable Education (SAVE) for Direct Loans, Direct PLUS loans (made to graduate or professional students), and Direct Consolidation Loans (that did not repay any PLUS loans made to parents)
Formerly the Revised Pay As You Earn (REPAYE) plan
Note that PLUS loans made to parents of children attending school do not qualify for repayment under an IDR plan.
Are You Eligible for a Graduated or Extended Repayment Plan?
If neither the Standard Repayment Plan nor an income-based repayment plan works for you, look into a Graduated Repayment Plan or Extended Repayment Plan. To learn more, check out our article: Should I Lower My Student Loan Payments With an Extended Repayment Plan?
Option 4: Refinance Your Student Loans
If you have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans, refinancing your student loans may be a good option for you. Student loan refinancing is what happens when you take out a new loan and use that new loan to pay off your existing student loan(s). Though it’s not guaranteed, if you get the right loan, you can also get a lower interest rate and/or smaller monthly payments.
Option 5: Try Negotiating or Settling Your Debt
If you have successfully negotiated credit card debt or other debt, you might be wondering whether you can do the same with your student loan debt. Most loan servicers will only consider negotiating a settlement once you have defaulted on your student loans, and even then, most lenders aren’t willing to settle. While this is particularly true for federal student loan servicers, if you have a private student loan, refinancing may be a more viable option.
To learn more, check out our article: Can You Arrange a Settlement With Student Loan Lenders?
Option 6: File Chapter 7 Bankruptcy
If your student loans are just part of your overall personal debt, and you feel like you can’t get ahead no matter what you do, you may want to consider filing for bankruptcy to get a financial fresh start. You can discharge your federal student loans through bankruptcy if you meet the eligibility requirements.
The Department of Education and Department of Justice recently teamed up and released updated guidance on discharging student loans in bankruptcy. These guidelines are intended to make the process more efficient for the bankruptcy court and more accessible to borrowers.
To get your student loans discharged through bankruptcy, you will need to file an adversarial proceeding after filing your bankruptcy case and then complete an attestation form. The attestation form includes questions to help you prove that paying off the debt would cause undue hardship.
To learn more, read our article: Yes, You Can File Bankruptcy on Student Loans. Here’s How. And if you want to see if you’re eligible for free help from Upsolve, check your eligibility now.
The Pros and Cons of Filing Bankruptcy To Deal With Student Loan Debt
Filing bankruptcy comes with quite a few advantages. For one, it stops collection activities on all your debts, including your student loans, through the automatic stay. It also means that other collection efforts such as garnishments will be halted. The automatic stay can provide tremendous relief if you’re experiencing serious stress due to your financial situation.
Bankruptcy can also empower you to get a handle on your other debts, like credit card debt, medical debts, personal loans, or payday loans.
You should also be aware of the drawbacks of filing bankruptcy. The biggest one is that your credit score may take a hit initially. This can affect your housing, employment, and financial opportunities. But keep in mind that if you’re missing payments on your student loans or other debts, your credit score will decrease for these too.