If you find yourself with a large monthly bill dating back to your college days, you surely want to find out how to get rid of student loan debt. The most obvious way is to pay it, but what if you can’t afford to? There are basically three avenues to take:
- Contact your lender to discuss options about restructuring your payments
- Apply for one of many forgiveness programs based on career or income
- Seek a discharge for a hardship that makes it impossible for you to repay the balance
The most important thing is not to fall behind on payments. When you are in default a lot of your options go away. The moment you know you have a financial problem start to find a way to stay in good standing.
Student Loan Forgiveness Programs
Forgiveness programs come in three categories. The first is based on your career choice. The second is based on how long you made on-time payments while enrolled in a qualifying repayment plan. The last one is debt discharge.1
Career Choice Programs
There are programs available based on industry. Your career choice may offer some opportunities for forgiveness.
- Public Service Loan Forgiveness (PSLF) Program – This is for full-time employees in government or not-for-profit organizations. It only applies to Direct Federal Student Loans. Also, you must make 10 years of on-time payments in a qualified repayment program before you can apply.
- The Teacher Loan Forgiveness Program – This is for elementary and secondary school teachers who work in low-income areas.
- Nurse Corps Loan Repayment Program – Pays 60% of loans over two years of employment at a qualified critical shortage facility in an underserved community. It pays an additional 25% for the third year of employment.
These are just a few of the programs available, but there are others for lawyers, doctors, military, and other professions. The best thing to do is to ask your employer if they have programs that help. Also, look at industry-specific organizations and search for programs with them.
Income-based Repayment Plans
These are based on how long you make on-time payments, not on which field you work in. Depending on the plan you must make on-time payments every month for 20-25 years.
- Pay as You Earn and Revised Pay as you Earn Plans – You must demonstrate financial hardship to enroll. It qualifies you for forgiveness after 20 years of on-time payments.
- The Income-Contingent Repayment and Income-Based Repayment Plans – They offer forgiveness after 25 years of on-time payments. You apply at Studentloans.gov.
These plans are only available for federal loans. Private do not qualify. If you do qualify for one of the plans, the amount forgiven is taxable because the Internal Revenue Service (IRS) considers it income.
Discharge is very rare. The only way to get it is if you show that you are unable to repay your obligation. Some reasons for discharge include:
- Permanent disability or death
- Identity theft
- Unauthorized signature on the loan without your knowledge
- False certification of eligibility
As you can see it is very difficult to get a discharge. In fact, bankruptcy usually doesn’t get rid of this debt. Courts will discharge it if you can show that it is an undue hardship.
Does Student Loan Debt Go Away After 7 Years?
Student loans do not go away. You owe the bank the money, and the debt accumulates penalties and interest just like any other delinquency. While they may fall off your credit report after seven years, there is no statute of limitations that prevents lenders from collecting from you.
- Defaulted private student loans fall off your credit report 7 ½ years after the first missed payment.
- Defaulted federal student loans fall off after seven years from the default date or seven years after the Federal Family Education Loan Program (FFEL) transfers it to the Department of Education.
- If your lender transfers your loan to someone else, it will reappear on your report.
- Federal Perkins Loans stay on your report until you pay the balance.
Whether you struggle to make on-time payments or haven’t made a payment in years you should deal with the debt. Here are some things you can do to clear up your student loan balances:
- Call your loan servicer and see what options they have that will keep your account in, or bring it into, good standing.
- If you have a federal loan, explore income-driven repayment plans.
- File for deferment if you are unemployed, in active military service, or seriously ill.
- While private issuers don’t have to defer or modify your loan it is in their best interest to work with you and get paid. So, it is a good idea to contact them.
Remember, your student loans don’t just go away, no matter how long it’s been. Even if it goes off your report your lender may still sell it, and that new servicer may put it back. In the case of Perkins loans, the only way to get it off is to pay it.2
What Happens if You Never Pay Student Loans?
You won’t go to jail for not paying student loans, but the legal and financial consequences are dire.3
Timeline When You Stop Paying Student Loan Debt
On a typical loan, you have a 28-day grace period after your billing date. If you don’t make full payment by that time you are delinquent. Typically, your lender contacts you frequently reminding you to pay. They also send out 30-day, 60-day, and 90-day notifications.
After 90 days lenders usually report the delinquency to the credit bureaus, and it goes on your report. After 270 days you are in default. Lenders don’t want to keep these loans on their books, so they transfer them to collection agencies. At this point, they usually take other actions.
Consequences When You Stop Paying Student Loan Debt
Once you are in default your lender has many aggressive options to get you to pay your balance. Here are some of the things that happen:
- You lose eligibility for forgiveness, forbearance, deferment, and changing repayment plans.
- You lose eligibility for financial aid.
- The lender can garnish your wages, tax returns, social security, and other government payments.
- Your lender can sue you.
- The lender may put a lien on any property you own.
Final Thoughts on How to Get Rid of Student Loan Debt
There are only two ways to get rid of student loan debt, repayment and forgiveness/discharge. It may disappear off your credit report, but it never goes away. It will cause you financial problems until you take care of it.
Therefore, take care of it as soon as possible. Talk to your lender, but also talk to a certified financial advisor. You may be surprised about creative ways to handle this problem.