Michael Youngstrom graduated in May of 2016. Three months later, Michael received the first reminder when payments began to whittle down his student loan debt. Still looking for a job in his chosen vocation, Michael started to worry about his finances.
“It can be pretty scary when you can’t make the first payment on a student loan. I didn’t have a job and the odd jobs I had weren’t enough to pay for my daily living expenses.”
Michael represents one of thousands of college graduates who discover earning a degree is not the golden brick road that leads to financial success. In fact, many college graduates have to find alternative ways to pay off student loans.
The Legal Options for Paying Off Student Loan Debt
If you cannot meet your current student loan payment obligations, federal law has created four options to help mitigate or even eliminate your student loan payments. You can enter a deferment or forbearance program, as well as consolidate your student loan into one comprehensive debt package. The worst case scenario involves having a student loan discharged by filing for bankruptcy.
Deferment
The six month to two-year period that follows college graduation represents a wake-up call for most new entrants into the workforce. You have to juggle several new debt obligations that range from paying monthly utility bills to meeting an automobile loan repayment schedule. Moreover, the first student loan repayment notice comes in the mail and your financial world turns upside down.
Fortunately, the federal government has created a deferment program to allow college graduates experiencing economic hardship to defer making monthly student loan payments. If you can prove economic hardship, plan to return to school, or cannot find a job commensurate with your academic training, you might qualify for a student loan deferment.
Forbearance
Many college graduates immediately find gainful employment, which means they have the financial capability to meet monthly student loan payment obligations. However, couple of years later, a financial bump in the road puts a recent college graduate in financial peril. Student loan forbearance allows you to stop making payments for a specified period. Interest continues to accumulate on the loan balance, but you have time to recover from an unexpected financial hit. Lenders grant forbearances to borrowers who experienced unexpected health setbacks or make student loan payments that exceed 20% of gross income.
Bankruptcy
Bankruptcy represents a legal process that discharges the debts of someone undergoing severe financial stress. The legal process wipes the financial slate clean, from eliminating auto loan payments to stopping creditors from hounding debtors to pay off credit card debt. However, discharging a student loan under bankruptcy law is not an easy thing to accomplish. You have to demonstrate severe economic hardship, such as sustaining a serious injury that prevents you from working. Courts consider a wide variety of factors to determine student loan discharge decisions that include your age, income, expenses, and most important, the length of time your severe financial hardship is expected to continue.
Consolidation
You might have the option to bundle your student loan debt obligation into a consolidated loan that includes payments to other creditors. Consolidating your debt obligations involves finding a lender that is willing to bundle your debt obligations at a new interest rate you can afford. Consolidated loans typically take longer to pay off, but your total monthly debt payments decrease to place less financial strain on you.
Falling behind on student loan payments has become an unfortunate fact of life for millions of recent college graduates. If you are one of the millions of former students that barely gets by financially, consider one of the options allowed under federal law to delay, reduce, or eliminate your student loan obligation.
