Debt Relief Options Every Graduate Should Understand

Millions of college graduates get their diplomas in one hand and debts in the other. In fact, recent Federal Reserve data found that 42 percent of Americans who attended college have student loan debt.

…but there is good news…

Graduates have several debt relief options at their disposal. Below, we'll cover everything you need to know about getting out of debt.

Here's what we'll cover:

1. Understanding Student Loan Debt
2. Federal Debt Relief Programs That Actually Work
3. Private Student Loan Options
4. Bankruptcy Options
5. Protecting Yourself During Debt Recovery

Understanding Student Loan Debt

Before graduates start exploring relief options, they'll first want to understand the loans they're paying off.

There are two types of student loans: federal and private. Federal loans are taken out from the government itself, while private loans are taken out with banks and lenders.

Bear with me…

Don't be afraid to utilize multiple tactics to pay off your student loan debt. Many graduates think they need to stick with a singular solution. But some relief strategies only apply to federal loans, while others may help with private student loans.

Federal student loans come with a variety of protections and repayment options that make them easier to repay. Private student loans have fewer protections.

Federal Debt Relief Programs That Actually Work

The federal government isn't interested in giving graduates a free ride. But they do offer programs that make it easier to pay down debt if you've been responsible with payments and chosen the right career.

Income-Driven Repayment Plans

Income-driven repayment plans cap your student loan payments to an affordable percentage of your income. These federal programs are based on income and family size.

After making payments for 20-25 years, the remaining balance is forgiven by the government.

There are a few different plans you can sign up for:

• SAVE Plan: Monthly payments are determined by your discretionary income
• PAYE: Your payment amount is capped at 10 percent of your discretionary income
• IBR: Borrowers who owe high amounts compared to their income may qualify
• ICR: This is the oldest repayment plan. It has the highest payment cap.

Each repayment plan has different eligibility requirements and nuances. Do your research to determine which plan will work best for you.

Public Service Loan Forgiveness

If you work in public service, you may be able to have your remaining loan balance forgiven after 120 qualifying monthly payments. To qualify, you must be employed by a qualifying employer when you make these payments.

Qualifying employers include:

• Government organizations at the federal, state, or local level
• Non-profit organizations
• Public schools and hospitals

There is a catch with this program…

The forgiveness process is strict. Many grads get denied because they made simple mistakes on their application. You must be able to document everything to apply for this program.

Private Student Loan Options

Private student loans are not eligible for the federal programs mentioned above. But there are relief options graduates can explore.

Refinance Your Student Loans

Loan refinancing replaces your existing student loans with a new loan. New loans typically have lower interest rates which means your monthly payment will be lower.

If you refinance federal loans, you'll lose federal protections and benefits.

Negotiate with your lender

If you have private student loans, call your lender and explain your situation. Most lenders would rather work with you than go through the hassle of collections.

You could be offered:

• Lower payment options until you can afford the regular payment
• Lower interest rates
• Longer repayment terms

It can't hurt to try. The worst they can say is no!

Bankruptcy Options

Can you include student loan debt in bankruptcy? For many years, the answer was a hard no.

But now, bankruptcy courts are starting to become more lenient. If you can prove "undue hardship," your student loans may be discharged through bankruptcy.

Here's a not-so-popular fact…

Filing for bankruptcy may make it harder to land a job. Many employers run credit checks on potential employees. Federal law says you can't be fired because you filed for bankruptcy. However, private employers aren't always obligated to hire someone who has filed for bankruptcy. You may want to consult an employment lawyer like WH Law Offices to understand your workplace protections if you choose this route.

Here are your bankruptcy options:

• Chapter 7: Liquidation bankruptcy. Best if you have little to no income
• Chapter 13: Repayment of debt over 3-5 years.

There is no standard test for "undue hardship." Some courts use the Brunner Test, which requires you to prove…

1. That you cannot maintain minimal standards of living
2. Based on your current financial situation this hardship will continue
3. You've made good faith efforts to repay the loan.

Bankruptcy should be used as a last resort. But if you find yourself strapped with debt and no way to improve your situation, it may be a consideration.

Protecting Yourself During Debt Recovery

If you're behind on your student loan payments, you may face aggressive collections. Knowing your rights can protect you from debt collectors.

Collectors can't:

• Call you before 8 AM or after 9 PM
• Use abusive language when speaking with you
• Lie about the amount you owe
• Discuss your debt with your employer (in most cases)

One more thing…

Student loan debt recently hit $1.78 trillion. With that much money owed, collectors are going to fight hard to get their money. Empower yourself by knowing your rights.

If you're being harassed by collectors, you can:

• Ask for debt validation in writing
• Keep detailed records of every interaction
• File complaints with the Consumer Financial Protection Bureau

Take notes. Every call, letter or interaction with the collector should be documented.

Bonus Round: Other Relief Options

Here are a few more strategies you may want to consider.

See if your employer offers repayment assistance. As more companies offer student loan repayment as a benefit, this may be a viable option.

Look into state-based forgiveness programs. If you work in high need fields like teaching or nursing you may qualify for state forgiveness programs.

Join the military. Active military service can qualify you for repayment programs and even forgiveness after serving a period of time.

Student Loan Debt Relief Bottom Line

You don't have to let student loan debt ruin your life. Graduates have options when it comes to getting out of debt.

Just remember the following:

1. Know the difference between federal and private student loans
2. Research income-driven repayment plans
3. Look into Public Service Loan Forgiveness if you have the right career
4. Bankruptcy may be an option
5. Educate yourself on workplace protections concerning debt.

Don't wait until your debt gets out of hand. Take action as soon as you graduate. The sooner you act, the more options you'll have.

You may not qualify for every option above. Everyone's financial situation is unique. Start researching what you can do and take that first step!