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Student Loan Debtors Find New Relief Options

While policymakers scramble to find a solution to the growing student loan debt crisis, an increasing number of borrowers are finding unlikely ways to reduce their financial obligations.  Cash-strapped borrowers are using options like repayment plans and bankruptcy to decrease their student loan payments and, in some cases, eliminate their debts altogether.


While the approaches aren’t novel, borrowers these days are looking for any way they can lighten the financial load. New graduates learn quickly that the student loans that helped them through college are difficult to pay back, and some graduates question if the debt was worth it.


“I’ve come to the conclusion that it’s an obsolete idea that a college education is like your golden ticket,” a 25-year-old college graduate told Bloomberg Businessweek. “It’s an idea that an older generation holds on to.”


Nontraditional Student Debt Options


One debt resolution method gaining popularity is income-based repayment, which adjusts the monthly payment to 15 percent of a debtor’s income and forgives any remaining debt after 15 years. Officials plan to make the program available to more graduates by the end of this year. They will also decrease the 15-percent income threshold to 10 percent for some borrowers. Only about 970,000 graduates, or 2.6 percent of all borrowers, are currently using this little-known program.


The option does come with stipulations. To get into the program, borrowers must apply through their lending banks. Federally guaranteed loans issued through private lenders may not qualify for the program.


Bankruptcy is another avenue borrowers are exploring. Although bankruptcy almost never wipes out student loan debt, it can be done under certain circumstances. A debtor must prove undue hardship to qualify, including not being able to maintain a consistent take-home income if forced to repay the loans. In many cases, extreme medical conditions qualify graduates for such exceptions. Studies show that up to 60 percent of those who request undue-hardship exceptions are granted full or partial loan discharge.


Government Proposals


With the delinquency rate an all-time high of 8.9 percent, officials continue to proffer solutions.  President Barack Obama and presidential candidate Mitt Romney both want to trim the growth of college costs. They agree that extending lower interest rates on subsidized federal loans will help, but the candidates’ plans diverge from there.


Obama proposes to extend tax credits for college expenses and increase federal grants. Analysts say it’s a lofty goal that could fall flat because of budgetary concerns.


Romney says the long-term solution is to reduce grants and student loan forgiveness. His plan would instead focus on creating jobs for new graduates. Critics say the plan could cost taxpayers billions without saving students any money.


In the past decade, community college tuition has risen about 40 percent and four-year public university tuition has gone up nearly 70 percent. Both candidates aim to ease the heavy financial burden posed by higher education.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

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