Student loan debt now tougher to tackle

Prior to the new law, a private student loan could be discharged under Chapter 7 bankruptcy. But now, if a student loan holder defaults on payments, there is no bankruptcy option, except in very rare cases.

In addition, you may be subject to a number of other penalties intended to make you pay down the debt. These may include losing tax refunds, having up to 15 percent of your wages garnished and having Social Security payments reduced.

It seems as though the only remedy lenders don't have is to put a lien on your cat or dog.

It would be worthwhile to determine if you qualify for forgiveness or repayment by a third party. This is rare (see my earlier column "Student loan forgiveness: rare, but possible"), but it does happen. You can find more information on forgiveness and/or repayment programs at the U.S. Department of Education Web site.

So, unless you are eligible for one of the forgiveness or repayment programs, you have to figure out how to pay your student loan debt while meeting all your other monthly obligations. Below are some suggestions for you to consider:

5 ways to pay off student loan debt
  1. Consolidate all your student loans into one loan that spreads the payments over a longer period of time. Usually you will receive a better interest rate and a lower monthly payment through consolidation.
  2. Work out a repayment plan with your lender to extend payments or for graduated payments that increase as your earning potential increases.
  3. Ask your lender to defer repayment until career and financial circumstances have improved.
  4. Get a higher-paying job.
  5. Marry someone who is rich.

I suggest you start by comparing offers from consolidation companies. Don't sign anything until you understand all the terms and conditions of the loan and know that you can afford the payments.

If that fails, work your way down the list -- and try to avoid the last option if you can!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of Credit Repair Kit for Dummies. Visit MMI for additional debt advice or to ask a question of the Debt Adviser go to the "Ask the Experts" page.


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