4 Real Alternatives To Student Loan Forgiveness

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What happens if all $1.6 trillion of student loan debt is not forgiven?

Here’s what you need to know.

If Student Loan Forgiveness Doesn’t Happen

While many student loan borrowers are excited about the possibility of complete student loan forgiveness, there’s a good possibility that all your student loan debt will not be forgiven. If this is the case, then what? Make sure you have a student loan repayment plan. Here are 4 real alternatives to student loan forgiveness.1.

1. Enroll In Income-Driven Repayment

Income-driven repayment plans lower your monthly federal student loan payments based on your discretionary income, family size and state of residence. The result is short-term financial relief, although interest will accrue on your student loans and your balance likely will get larger. Therefore, the cost of your federal student loans likely will be higher under an income-driven repayment plan compared with the 10-year standard repayment plan. The good news is that you can receive student loan forgiveness after 20 years (for undergraduate loans) or 25 years (for graduate student loans). Importantly, you will owe income taxes on the remaining student loan balance that is forgiven.

2. Consolidate student loans

Federal student loan consolidation is the process of combining your federal student loans into a new federal student loan called a Direct Consolidation Loan. Think of student loan consolidation as an organizational tool to have one monthly payment, one interest rate and one student loan servicer. Only federal student loans (not private student loans) are eligible for Direct Loan Consolidation. Importantly, federal student loan consolidation does not lower your interest rate. Rather, it is equal to a weighted average of the interest rates on your existing federal student loans rounded up to the nearest 1/8%.

3. File For Bankruptcy

This may not be an alternative that you want to hear, but it may be a viable option depending on your individual circumstance. A Navy veteran was recently granted $221,000 of student loan discharge. U.S. bankruptcy judge in New York, Cecilia G. Morris, ruled that Kevin J. Rosenberg will not have to repay his student loan debt because it will impose an undue financial hardship. Traditionally, unlike mortgages or credit card debt, student loans cannot be discharged in bankruptcy. There are exceptions, however, namely if certain conditions regarding financial hardship are met.

4. Refinance student loans

Student loan refinancing rates are incredibly cheap right now and start at 1.89%. Student loan refinancing is the fastest way to pay off student loan debt because you get a lower interest rate. You can choose new loan terms, including variable or fixed rate and a loan repayment term from 5 to 20 years for your federal and private student loans. Lenders prefer borrowers with at least a 650 credit score, stable and recurring income, and a low debt-to-income ratio. Unlike student loan consolidation, you could save tens of thousands of dollars in interest costs when you refinance.

This student loan refinancing calculator shows how much you save when you refinance student loans.

[“source=forbes”]