What Are Alternate Solutions to Student Debt?

Student debt is a separate category from regular loans, because many student debts are based in government loans that do not follow the same rules. For instance, in a bankruptcy, student debts are likely to remain or be paid off fully if they are federal in origin, since federal debts take priority. This, combined with college student finances soon after graduation, can put pressure on students to pay off their debts. If students are struggling and do not want to fall behind on their debt, there are several options for debt aid they can pursue.

Deferment

Deferment occurs when a student applies to the government or a lender for a pause in the loan. Essentially, the lender agrees to halt the monthly payments that student loans require for a specific period of time, usually at least several months. This does not remove or cancel any debts on behalf of the student. Instead, it gives the student a chance to find a job, pay off other debts and increase income until the loan can be dealt with properly.

Forgiveness

Loan forgiveness is another option students can seek through negotiations with a private lender or through government programs designed to help struggling students. A lender will forgive or cancel part of the debt to ease the debt burden, as long as continual payments are made. This has its advantages; part of the debt is permanently removed. But students will still have to pay income taxes on this forgiven amount.

Consolidation

Consolidation refers to replacing one loan with another. This is a useful option if the student can find a government consolidation program or owns a house that has enough equity for another home loan. The purpose of consolidation is to pay off the student loan entirely by creating a new loan with more favorable terms, such as a lower interest rate (which can be difficult to get with federal student loans) or lower monthly payments, which students can obtain by getting a loan with a longer term.

Alternative Repayment

Alternative repayment programs do not forgive any debt, but they do alter the terms of the loan slightly so that students do not struggle as much. The goal of an alternative repayment system is to lower monthly payments without resorting to consolidation. The lender is often willing to lower the rate or lengthen the term of the mortgage to make payment easier.