Student Loan Debt Relief FAQ
The US has over $1.6 trillion worth of student loan debt, most of which are federal loans. These loans are shared between 43 million adults or roughly 16% of the population. Many of these debts will remain long after the debtor has finished school and some will stick around for decades, crippling the debtor’s finances and placing a massive burden on their shoulders.
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In this guide, we’ll look at some of the most frequently asked questions about student loan debt and student loan debt relief, helping you to manage, control, and eventually clear these debts with ease.
What is a Normal Student Loan Debt?
Average student loan debt is around $37,000, but this has been edging ever closer to $40,000 in recent years. For comparison, the average credit card debt is close to $6,000 and the average borrowed for a new car is just over $31,000.
$37,000 is a huge sum of money to a college student and anyone who doesn’t have a few million in the bank. But this is the norm and when it’s stretched out over the loan’s term and placed in the context of your future and your career, it doesn’t seem so bad.
What’s the Highest Student Loan Debt?
The state of Connecticut has the highest average debt, although at $39,000, this isn’t a great deal more than the national average. Over half a million borrowers nationwide have debts in excess of $200,000, which is often the result of long stints at medical school and law school. Although these debts are considerably higher than the general population, the debtors are also expected to lead to more lucrative careers.
In terms of age group, you might be surprised to know that the overs 60s carry some of the most student loan debt. Their age bracket now has over 13 times more debt than they did in the early 2000s, most of which is the result of loans taken for children and grandchildren.
Borrowers in the under-30s age bracket are the most common, but those aged between 30 and 39 have more outstanding loans than any other age bracket.
Is it Good or Bad?
It could be argued that debt is never good, which is somewhat true. However, it’s important to look at the alternatives before you judge whether a debt is good or bad. Credit card debt, for instance, is rarely good, because if you didn’t have it, you’d be forced to tighten your belt and buy fewer useless things that you don’t really need.
With student loan debt, your options are to either not get an education or to spend several years working to save the money and pay for that education directly, in which case you could have just thrown your prime years away and may become trapped in a dead-end job.
In one sense, no amount of debt is good and that’s especially true for a $37,000 debt that you’ll have for the next decade or so. On the other hand, if you study hard and work hard, that debt could lead you down a very lucrative career, one that makes that $37,000 look like a bargain.
Can Student Loan Debt be Cancelled?
Excluding forgiveness, which we’ll discuss below, student loans can also be cancelled, albeit only in extreme circumstances. These circumstances all relate to issues with the school. If any of these occur, you can file for cancellation and have your student debts discharged.
This is true if the school closes while you are attending, but you may also qualify for a partial refund if you don’t finish school or if you have any other major issue with the school.
Can Student Loan Debt be Forgiven?
You can qualify for partial or complete student loan forgiveness if you work in the public sector. The following programs are available:
- Public Service Loan Forgiveness: Offered to those who work for a non-profit or the government. You need to first make 120 monthly payments and they will cover the rest.
- Teacher Loan Forgiveness: You may be eligible for a discharge of up to $17,500 if you have been working in a qualifying school for five full and consecutive years.
- NURSE Corps Loan Repayment: Nurses can clear as much as 85% of their student loans if they work in areas experiencing a shortage.
- Military Loan Forgiveness: There are numerous programs aimed at people in the military, from soldiers to army doctors and more. Generally, you need to have been active for several years to qualify and can have a significant percentage of your loans discharged.
Will Student Loan Debt Prevent Me from Getting a Mortgage?
Simply having student debt won’t prevent you from getting a home loan. However, it may impact your credit score and your debt-to-income ratio, which can, indirectly, impact your chances of getting a mortgage.
You need a score of at least 500 to get an FHA loan and over 620 for a Conventional loan. You will also need a down payment, the size of which will depend on the type of loan and the price of the house, and a good debt-to-income ratio.
In most cases, this needs to be lower than 50% after the mortgage payments have been accounted for. For example, if your student loan payments are costing you $500 a month, the mortgage costs $1,000 and you pay $500 for other debts, that’s $2,000 total. If you have an income of $4,000 a month, then your debt-to-income ratio will be 50%, as $2,000 is 50% of $4,000.
To improve your chances of getting a mortgage, focus on increasing your income, decreasing your debt payments, and improving your credit score.
Can it be Included in Bankruptcy?
Technically, you can discharge student debt by filing for bankruptcy, but it’s not easy. There are several additional steps to getting your student debts discharged and for the court to consider it, you need to meet hardship requirements.
However, they won’t simply consider how much money you have now. They will also look at your future and how likely you are to make money and cover these debts many years from now. Unless you’re over the age of 50, have no money now and are likely to be poor forever, you may be refused.
Can Student Loan Debt be Negotiated?
Federal student loans offer several repayment plans, including standard repayment, which is capped at 10 years with fixed monthly payments, and extended repayment, which offers similar terms but extends it over the course of 25 years.
How it Affects You
What Happens to Student Loan Debt When You Die?
Student loan debt is unsecured. Typically, unsecured debt will pass to the debtor’s estate and will be last in line to collect, behind tax debt and medical bills accumulated several months before death.
In community property states, it can pass to the debtor’s spouse, who will then become responsible for it. All of this sounds pretty bleak—even death isn’t an escape from debt. However, student loans are different.
All federal loans will be discharged on death and the same applies to private loans acquired through most major providers. There is no guarantee with the latter, but this applies in most cases. It’s also true for the cosigner—if they pass away, the student doesn’t become responsible for the debt.
Does Student Loan Debt Affect Your Credit Score?
Student loan debt can impact your credit score just like any other debt and won’t have more or less affect. However, this changes if you miss payments and your account defaults, at which point you could see a significant drop in your credit score.
Focus on making your payments on time every month and don’t worry about the initial reduction, as it will recover in time.
Can it Take my House?
It’s rare, but you can lose your home for failing to pay your student loans and this even applies to federal student loans. If you don’t meet your monthly payments, your account will go into default after 270 days. At this point, they may garnish your wages or take legal action.
The government sues around 1,500 borrowers a year, and in nearly all cases they are successful. Once this happens, they can place a lien against your home.
Does it Affect Your Tax Refund?
In addition to your home, you can also lose some of your Social Security payments and your tax refund if you fail to make payments on your federal student loans. These claims will typically occur before they seek to place a lien against your home or other assets.
What is Student Loan Debt Consolidation?
Also known as refinancing, consolidation can help you to “consolidate” several loans into one. It’s a great option for private student loans that you can no longer repay and it can also reduce your monthly payments, often by extending the term.