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Surviving Debt: The Adjustment Is Automatic for Most Borrowers but Others Must Act

If your loans are all held by the Department of Education, then you do not need to take any additional steps to get credit under the payment count adjustment. But if you don’t have enough time to have your loans forgiven under IDR or PSLF loan forgiveness after the account adjustment, you will need to sign up for an IDR plan going forward if you want to keep earning credit toward IDR or PSLF loan forgiveness.

Surviving Debt: You Have Several Repayment Plan Options

The typical federal student loan repayment plan, called the Standard Repayment Plan, generally gives you up to ten years to repay your student loan (up to 30 years for consolidation loans). Under the Standard Repayment Plan, payments are the same amount every month. But the Standard Repayment Plan is just one option—there are a number of other repayment plans that borrowers can choose to manage their loans.

Surviving Debt: SAVE

The SAVE (Saving on a Valuable Education) plan is the newest IDR plan. The SAVE plan is one of the best plans for student loan borrowers to consider. Compared to the other IDR plans, the SAVE plan will:

Surviving Debt: PAYE

PAYE (Pay As You Earn) is another good plan to consider if SAVE is not right for you, though borrowers will not be able to enroll in this plan after July 1, 2024 (borrowers already enrolled in PAYE before that date may remain in the plan). PAYE may be a better option than SAVE for some borrowers with graduate school debt who would benefit from the 20-year cancellation period or for borrowers whose income increases significantly after initially enrolling in PAYE.

Surviving Debt: IBR

IBR (Income-Based Repayment) is generally not as generous as the SAVE and PAYE plans, but this may be a good option for FFEL borrowers who don’t consolidate their loans into a Direct Consolidation Loan and for some borrowers with graduate school loans who cannot enroll in PAYE after July 1, 2024. IBR is generally the only income-driven repayment plan available to borrowers with FFEL loans.

Surviving Debt: ICR

ICR (Income-Contingent Repayment) usually requires higher payments than SAVE, PAYE, and IBR. However, ICR is the only IDR plan that is available to borrowers with Parent Plus Loans, but you first have to consolidate your Parent PLUS Loan into a new Direct Consolidation Loan to be eligible.

Starting July 1, 2024, the ICR plan will limit new enrollments. After that date, only borrowers with Direct Consolidation Loans that include an underlying Parent PLUS Loan may enroll in ICR.

Surviving Debt: Consider Consolidating Loans to Make Repayment Easier

If you have federal student loans, you may be eligible to consolidate (combine) your loans into a new Direct Consolidation Loan. You may want to consolidate your loans if you have multiple loans and want to simplify repayment or make your loans eligible for certain loan repayment, relief, or forgiveness options. You may also want to consolidate defaulted loans to get out of default.

Surviving Debt: Loans That Defaulted Before the Pandemic

If your loans were in default before the payment pause, they will still be in default when you return to repayment unless you take action to get them out of default. Right now, there are three ways to get your loans out of default:

  • ● Sign up for Fresh Start;
  • ● Complete a loan rehabilitation; or
  • ● Consolidate your loans to get out of default.

Surviving Debt: Using Fresh Start to Get Out of Default

The Fresh Start Program is the easiest way to get out of default. All you have to do is make a quick phone call. The Fresh Start Program is only available until September 30, 2024. The pause on collections will continue for all loans that are eligible for Fresh Start (loans that defaulted before the pandemic) through the end of the Fresh Start period. Don’t miss out!

Surviving Debt: Discharging Federal Student Loans in Bankruptcy

It is difficult, but not impossible to discharge student loan debt in bankruptcy. Bankruptcy is often considered a last resort option because of the impacts it can have on your credit and the costs and time involved in filing for bankruptcy. If you are struggling with debt and have student loans, it may be worth talking to an experienced bankruptcy attorney about your options. The federal government recently made changes to bankruptcy guidance that should increase the number of borrowers who are able to have their federal student loans discharged in bankruptcy.

Surviving Debt: Private Student Loans Are Different

Private student loan payments are lower priority than paying your mortgage, rent, utilities, car loan, or even your federal student loans. Private student loans should be treated like your credit card or medical debt—the only difference being that, as with federal student loans, it may be difficult (but not impossible) to discharge most private student loans in bankruptcy.

Surviving Debt: Be Aware of the Statute of Limitations on Old Private Student Loans

Unlike with federal student loans, there are state statutes of limitations that apply to private student loans. If a number of years has passed since you last made a payment or requested a deferment or forbearance on a private student loan, talk to an attorney before you contact the lender or start making payments again. A “statute of limitations” may have already expired on the loan, meaning the lender can no longer sue you on the debt. Payment now—or even a new promise to pay—may suddenly give the lender the right to sue you for years into the future.

Surviving Debt: Relief Options for Private Student Loans

Private student loans do not have the same flexible repayment plans, loan cancellation, or other borrower protections that federal student loans have, but there may be steps you can take to get help. First, see if the loan agreement says anything about relief if you are having trouble making payments. If the statute of limitations has not expired, you may choose to negotiate for lower payments or even a reduction in your principal balance.

Surviving Debt: Don’t Refinance Federal Student Loans into Private Loans

Be wary of refinancing federal student loans with private companies. Even if a private lender offers you an interest rate that appears to be lower than your federal student loan interest rate, the rate might be variable. This means that what could start out as a 3% interest rate may later jump to a 19% interest rate, which is far higher than federal student loan rates.

Surviving Debt: Discharging Private Student Loans in Bankruptcy

In general, the ability to discharge private student loans in bankruptcy is subject to the same difficult standard as applies to federal student loans. But there is an important exception. If the school you attended (such as an unlicensed vocational school) is not eligible to participate in one of the federal student financial assistance programs, then you can discharge the private student loan in bankruptcy just like any other unsecured debt. Also, it is becoming increasingly easier to discharge private student loans in bankruptcy.

Surviving Debt: Defending Against a Private Student Loan Collection Lawsuit

Private student loan lenders do not have the collection tools that are available to the government, making them more likely to sue on an unpaid debt. However, you have a number of defenses to such lawsuits. You may have similar defenses to these lawsuits as you would with other types of debt collection actions. See Chapter 4 for more information on responding to debt collection lawsuits.

Surviving Debt: Watch Out for Student Loan Scams

Scammers are taking advantage of all of the confusion surrounding student loan repayments and cancellation. Don’t pay a company to help you settle your student loan debt, reduce your payments, or access loan cancellation. Debt relief companies frequently charge expensive fees and upfront costs and never deliver on the promises they make to reduce your debt. And they can’t do anything for you that you can’t do for yourself, or with the help of your loan servicer, for free.

Surviving Debt: When to Pay on Your Credit Cards and When to Use Them

Credit card debt is a relatively low priority debt. If you do not pay it, you do not face immediate loss of your car, home, wages, bank account, or other property. If you do not have enough money to pay all your bills, you should generally not make significant payments on your card debt ahead of your mortgage, car loan, utilities, food, medicine, and the like. Keeping this priority in mind, this chapter provides advice on paying down your credit card debt.

Surviving Debt: How a Delinquent Credit Card Account Affects You

In making judgments about paying and using your credit card, you should understand what does and does not happen if you fail to pay your credit card. You are only required to make the required minimum payments on your credit card, but if you do so it will take many years to pay off your debt and you will likely pay thousands of dollars in interest. Nevertheless, if you consistently make the minimum payment, you will be avoiding late charges and your credit report will show your payments are on-time and current.

Surviving Debt: Special Cards Create Special Problems

The above description of the implications of a delinquent credit card applies to most credit cards. But a few special types of cards create additional concerns.

Some cards are specifically marketed to people who have low credit scores or no credit history. Beware of these cards! They come loaded with high fees that can eat up to 25% of the credit line. In some cases, you may even need to pay a fee to apply for the card. These cards usually do more harm than good for your credit score.