Student Loan Cancellation Programs for a College Debt Reduction

Few undergraduates would make it through university without borrowing money. According to FinAid, 86.3% of 4-year undergraduate students had to take out a federal or private student loan to meet the cost of their education. Although the cost of borrowing tends to be relatively low, it can take several decades to pay off college debt. A student loan cancellation program involves a public service commitment that rewards that person by paying off student debt more quickly.

Is Bankruptcy a Viable Student Loan Cancellation Program?

Although a way of eliminating many varieties of unsecured debt, student loan bankruptcy is not an option for most people. The exception to this over-riding rule is if an illness, injury or disease affects that person’s long-term earning potential or renders them incapable of working. This is because making debt repayments would bring considerable financial hardship on a family. Only a small percentage of people will be able to eliminate college loan debt or achieve any student loan reduction by declaring bankruptcy.

Income-Based Repayment (IBR) to Pay Off College Debt

The College Cost Reduction and Access Act of came into effect on the 1 July 2009 and brought about a series of changes to the way college loans could be repaid. A graduate will pay 15 percent of the difference between the poverty line figure (currently $10,830) and their current income. The income-based repayment involves making an affordable payment over up to 25-years. After this period has elapsed, any remaining college loan debt will be eliminated. It is important to appreciate that, under existing IRS rules, the cancellation of indebtedness income is taxable.

Federal Student Loan Forgiveness Programs

A public service loan cancellation program applies to certain government, public sector and non-profit occupations. Each year of service in nursing, teaching, the armed forces etc will lead to a defined reduction to the total amount owed. Although many student debt reduction plans have been scaled-back due to severe financial constraints brought on by the recession, they should still be investigated. These programs typically apply to lower paying jobs and aren’t available as a means of negotiating private bank finance.

Student Debt Reduction by Volunteering

A volunteer program offers graduates a bursary for working and helping the community on a national or international basis. For example, Americorps offers volunteers a payment to up to 75,000 people each and every year. They currently offer a payment of $7,400 and a further $4,725 payment will be made subsequent to the completion of the program. Although the objective of this scheme is to help the less fortunate, it is also a way to repay student loan debt.
Repay Student Loans, Don’t Default

Although making repayments can prove difficult, it isn’t possible to run away from unpaid student loan debt. There are a number of ways to make repayments more affordable, including income-based repayment and student loan forgiveness programs. Student loan default not only damages credit scores, it also means that forbearance, deferment and other programs designed to help will no longer be an option.