Here's when you can get out of paying back student debt
Reuters/Larry DowningWith student loan debt soaring around the US, and Mark Cuban warning of a "student loan bubble" due to rising tuition costs, it's crucial for students to understand how to best pay off their student loan debt.
But not everybody realizes you can sometimes get out of paying some of your student loans.
The US government even discharges debt completely in some cases, like if your college collapses while you're still getting your degree.
Full Discharge of loans
Full discharge of student loans occurs in serious instances. If your school has closed down while you are still enrolled and you can't graduate, you are often eligible for a full discharge of your loans.
Full cancelation of loans also occurs in instances of death, permanent disability, and in rare cases, bankruptcy.
People who aren't eligible for a discharge through these extreme circumstances can be eligible for partial student-loan forgiveness through other means.
Public service loan forgiveness
This loan forgiveness plan offers a fairly quick way out of paying your student loans. If you work in public service (including jobs with the federal, state, or local government), or for a tax-exempt nonprofit organization, you may qualify for early termination of your loans after 10 years under the Public Service Loan Forgiveness Program.
To qualify, you must make 120 on-time payments. Paying ahead for future months does not count as one of your 120 scheduled payments.
The bottom line is that you can get out of your student loans in 10 years if you don't miss a payment and work at a public service job.
Teacher Loan Forgiveness
If you're a teacher at a low-income school, as indicated on an annual list determined the federal government, you are eligible for 100% discharge of your Perkins student loan (a type of need-based loan).
In addition to Stafford Loan forgiveness, those who teach in low-income schools for five consecutive years can also have $17,500 taken off their student loan balance of Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford Loans.
Income-Driven Repayment Plans
Income-driven plans can help graduates tackle student loan debt if they don't have a job in public service and aren't a teacher. There are three types income-driven plans, all of which require at least 20 years of payments.
The Pay As You Earn Repayment Plan offers the ability to pay monthly payments that are 10% of discretionary income as long as you are a "new" borrower who got a loan on or after July 1, 2014. After 20 years of qualifying payments, your debt goes away completely.
The Income-Based Repayment Plan also offers the ability to make monthly payments that are 10% or 15% of discretionary income for 20 years until the debt is forgiven completely.
Via FlickrIncome-Contingent Repayment Plan offers payments that are recalculated each year based income. Forgiveness eligibility is available after 25 years.
While these plans may sound like excellent deals, some experts in student loan management warn students to be wary of income-based repayment plans. These plans result in students simply "treading water," according to Andrew Josuweit, CEO of Student Loan Hero, a company that helps students manage their debt.
Income-based repayment plans reduce individual payments but may actually increase the student loan balance owed in the long term, according to Josuweit.
If your payment amounts are so low that you aren't even paying of the principal of your loan you won't be chipping away at the overall balance you owe. Or, if your payment amounts don't even cover all of the interest amount each month, the residual would be recapitalized to your loan, increasing the total balance owed.
Income-based repayment plans do provide benefits in certain situations, and Josuweit says they're better than defaulting on student loans if you're completely unable to make your normal monthly payments.
There are loan calculators On Student Loan Hero that can help compare different plans and determine the best course of action for students who are trying to manage their seemingly unmanageable debt.
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