In the past few years, the topics of student loan debt and huge increases in college tuition have increasingly made their way into discussions on US finance and the economy. A graduate with thousands or tens of thousands of dollars of school debt may need to delay significant life events, such as marriage, children, and home ownership because of large student loan payments.
In the United States, student loan debt is second only to the amount of money currently owed for mortgages. According to Consumer Reports:
“Americans owe $1.3 trillion in outstanding student loans. That’s the second largest consumer debt, surpassed only by mortgages. A college education can cost as much as or more than a mortgage.”
One of the difficulties some graduates face is a student loan balance that grows larger even while they’re making payments. If you’re having trouble making student loan payments, or your balance is causing problems for your overall financial health, do you have any options such as filing for bankruptcy or refinancing your loans?
Student loan debt is a little murky when it comes to making changes like refinancing, but there are some options you may wish to explore.
Tackling the “Right” Debts First
It’s not uncommon for adults who graduated more than a decade ago to have a variety of debts, including a mortgage, student loans, car loans, and credit card debt. For anyone or any family looking to reduce their debt, financial experts often recommend paying off certain debts before others.
What they mean by this is that although you need to make your minimum monthly payments on ALL your debt, if you can devote EXTRA income to a specific debt, focus on one debt category at a time.
For example; in many cases, experts recommend leaving the mortgage as the last payment, but that leaves student loans, credit card debt, and car loans (as well as debts like personal loans) on the table. A recent article from CNBC recommends prioritizing credit cards before all other debts, but only when it’s clear the interest rates on the credit cards are the highest.
“Federal student loans typically have interest rates in the 4 percent to 6 percent range, depending on the exact type of loan. Private student loans, on the other hand, can come with rates in the double digits.”
CNBC even recommends building a retirement fund before paying off student loans or a mortgage. Many people put off building a retirement fund until they’ve paid off their student loans, but this strategy can lead to financial difficulties when that person retires in thirty years.
Getting Lower Interest Rates on Student Loans
For anyone with students loans where the balance is over several thousand dollars, it’s a worthwhile investment of time to inquire about getting lower interest rates through options like refinancing. Even if a graduate has a student loan with a respectable 4 percent interest rate (common with federal loans), consolidation may provide the opportunity to get an interest rate at 3 percent or below.
For a loan worth thousands of dollars and several years of payments, a reduction of a few percentage points could represent a rather significant drop in the amount of money paid back on the loan.
The only difficulty in getting lower interest rates on student loans is that private student loans don’t always come with the option to refinance or consolidate. Some banks will consolidate loans, but getting lower interest rates on student loans is a rare feat. Therefore, it’s usually in a student’s best interest to prioritize payments on private student loans.
Student Loans and Bankruptcy
In some cases, a person may feel that the only way he or she will ever get out from under the weight of student loans is through bankruptcy, but it’s essential to understand that not all loans are eligible for bankruptcy forgiveness.
Federal student loans cannot be discharged in bankruptcy, and the only options are to pay the loans off in their entirety or participate in one of the government’s pay-over-time programs that will require the debtor makes 20 years of consistent payments in exchange for loan forgiveness at the end of that time.
Private student loans exist in a rather murky area when it comes to loan forgiveness and bankruptcy. There is no guarantee that private student loans will be discharged during bankruptcy, so it’s usually not an ideal step to take if the only debts a person owes is his or her private student loans.
Do You Need Advice on Bankruptcy?
Are you drowning in student loan debt? Would you like to know your options for reducing or eliminating your debt? Would you like to know how the legal team at Suburban Legal Group PC can help? Request a Free No Obligation Legal Evaluation today, and we’ll let you know your options and whether bankruptcy is the right step for you.
DISCLAIMER: All information on this website is provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.