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A fourth way to handle student loan debts won't reduce the amount you owe but could make it easier for you to handle your payments. This is where you consolidate several loans into a new one. This new loan will have a longer term – meaning that you will have more time to pay back the money. However, so far as interest is concerned there is not much of a financial benefit to be gained by consolidating student loans. The reason for this is because all federal student loans have carried the same interest rate since 2006. In the past, you might have several different loans at several different interest rates so that consolidating them under a new loan could yield a better interest rate. But today, the main advantage is that you would have a longer term, which should mean lower monthly payments. Of course, there is a downside to this, which is that it will take you longer to pay back the money and it will end up costing you more in interest. As an example of this, if you were to take a 10-year student loan and stretch it out to 20 years, you will end up paying double the interest. But you would cut your monthly payment by 24%, which is certainly nothing to sneeze at.
Consolidating student loan debts into a new loan can be a bit of a gamble. Once you sign for that new loan your interest rate will be locked in. You could then see interest rates drop dramatically just a few months later.
Another option for paying off your student loans is a program called income-based repayment. This can be a particularly good option for people who are starting jobs with low salaries. Under this plan, your monthly payment would be capped as a percentage of your income. This rate is defined as the difference between your adjusted gross income (that's the amount of money on which you pay federal taxes) and 150% of the federal poverty level. If you are unmarried and have no children this comes out to be $16,245
As an example of this, if you were unmarried childless and had an adjusted gross income of $40,000, your monthly payments would be capped at $365. Of course, if you get a raise this would mean an increase in your monthly payments. In the event you are not able to pay off the full amount of the loan after 25 years of payments, your remaining balance would be forgiven.
Here's a short video with more information about the income-based repayment plan and how it could help with your student loansl
An important caveat
If you have already started repaying your loan, you could choose to switch to the income-based repayment plan. However there is an important caveat or downside. If you do this, you will restart the clock and your new loan will have a term of 25 additional years.
Filing for bankruptcy might or might not help
As noted above, you might be able to get your student loan debts canceled if they are discharged in bankruptcy. This is where you must prove to the bankruptcy judge that paying your debts would cause you to suffer an undue hardship. And this is much more difficult done than said. For most bankruptcy judges to discharge student loan debts you would have to prove that paying as little as $50 a month would cause you to suffer a really serious hardship. The fact is that very, very few people are able to convince bankruptcy judges to discharge their student debts.
If you are struggling
If you are struggling with your student loan debts there is a new solution, which is to contact National Debt Relief. If you do this, you will be assigned an expert debt counselor that will evaluate your finances, your employment and your outstanding federal loan debt. Following this, he or she will recommend a program designed to help you deal with those debts and then handle the preparation of all required documents. This requires a flat, one time fee but it's totally performance-based. The fee you're charged will be deposited into an escrow account and National Debt Relief will not take its fee until you have approved all the paperwork. In the event National Debt Relief cannot get you into a program, you will be charged nothing. After you have paid that initial, one time fee, there are no monthly maintenance fees. This is in comparison with National Debt Relief's competitors that charge both upfront fees and monthly maintenance fees – even after the job is done.