Ways to Pay Off Your Student Loan Debt

Posted by Wesley Scott on August 18, 2015 at 8:00 AM
Wesley Scott

student_loan_debtThe amount of student loan debt owed by Americans has surpassed the total credit card debt owed in this country. The cost of receiving a college education continues long after the student receives his or her diploma in the form of student loan payments.

On average, a college graduate beginning his or her career in 2013 did so with almost $30,000 in student loan debt. Most financial experts said that figure would continue to increase with each new graduating class and they were correct. The graduating class of 2015 can now claim the distinction of being the most indebted college graduating class in history. 

The average student loan debt in 2015 rose to $35,000 per person.  The number of students borrowing money is rising too.  Approximately 71% of students seeking a bachelor's degree have some amount of student loan debt upon graduating compared with only half that number 20 years ago.

Managing student loan debt can be very difficult; however, there are options available if you are unable to pay your student loan debt.

Student Loan Debt and Bankruptcy

A bankruptcy discharge typically does not eliminate student loan debt; however, it can help those who are struggling to pay their living expenses and other bills in addition to large student loan payments.  When you file a bankruptcy case, your other unsecured debts (i.e. medical bills, credit card debts, personal loans, payday advances, etc.) are discharged when you complete your bankruptcy case.  In other words, you are under no legal obligation to repay these debts. By eliminating your unsecured debts, you will have more disposable income to pay your student loan payments.

If you file a Chapter 13 bankruptcy case, your student loan payments will be deferred for the three to five years you are in bankruptcy.  Your bankruptcy plan will pay some funds toward your student loan debt; however, your student loan company receives the same percentage of payment that your other unsecured creditors receive through the plan.  While you will still be responsible for the repayment of your student loan debt after the bankruptcy plan is completed, your other debts are discharged and you are in a better financial position to handle student loan payments.

Other Options to Pay Student Loan Debt

If you do not have other debts that are causing you to struggle financially, you may want to consider other options to pay off your student loan debt.  Student loan companies offer several types of repayment plans for individuals who are having difficulty repaying their student loans. 

Below are several types of student loan repayment plans; however, not all plans may be offered by all student loan companies.

Graduated Repayment Plan

A graduated repayment plan offers lower payments at the beginning of the plan and increases the payments every couple of years up to 10 years.  This gives you time to start your career and begin working to increase your salary.

Income Based Repayment Plan

This type of student loan repayment plan bases your monthly payments on your current income.  In this plan, your monthly payments will not exceed 15% of your discretionary income.  The monthly payments change as your income changes. The term for loans under this option is up to 25 years.

Extended Repayment Plan

This is similar to a standard plan; however, the term of the loan can be up to 25 years compared to 10 years for a standard loan.

Pay as You Earn Repayment Plan

Your maximum monthly student loan payment will be 10% of your discretionary income for up to 20 years under this repayment plan.

Income Contingent Repayment Plan

Loan payments under this plan are calculated annually based on your family size, adjusted gross income, and the total amount owed on your student loans. Payments are adjusted as income changes for up to 25 years.

Some student loan debt can be very difficult to pay when you are beginning your career; however, there are ways to manage student loan debt. Companies offer different resources and plans to help students. 

We encourage you to contact the company that manages your student loan debt to discuss the various options they offer. If you are unable to find a plan that works for you, contact our office to discuss how bankruptcy can help you manage your student loan debt.

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Topics: Student Loans

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