Financial Retirement Planning

Viable options to get out of student loan default and rejuvenate your credit rating

student loanDid you recently find out that you’ve graduated college not only with a degree but with a huge burden of student loan debt? Student loan debt crisis is the next big crisis that is paralyzing the US economy and is crippling an entire generation. Studies reveal that there are increasingly large numbers of seniors who are still bearing their student loan payments that they’ve incurred when they were in college. With the rise in the cost of education, no student or parent is being able to bear the costs of college alone and are thereby taking resort to student loans and are then falling into the trap of student loan debt. Most students wonder about the options they might take resort to in order to get rid of student loan default.

Student Loans and Credit Ratings

When you’re more than 270 days back on your student loan payments, you will be considered in default and getting out of such a situation is what it takes to deal with student loans. Most of the repayment plans and postponement options require you not being in default or might demand you to make 3 reduced but timely payments in order to qualify for the alternative payment option. Apart from that as long as you’re in default, you won’t be eligible to get new grants or loans. Nevertheless, check out some ways of getting rid of defaulted student loans.

Approaches to Eliminate Student Debt

  • Cancel the entire student loan: You can get out of defaulted student loans if you can qualify for getting the loans cancelled or rather discharged. This is perhaps the best option for a cash-strapped borrower as you no longer remain obligated to make payments. However, as there are restrained options for cancelling student loans, this option might not be for all kinds of student loan debtors.
  • Get a direct debt consolidation loan: If you owe debt on federal student loans, you can take out a direct debt consolidation loan so that you’re able to combine your payments into a single monthly payment. The loan will carry drastically lower rates than what you were paying on the individual loans and hence you can also save a considerable amount of money. Once you get a direct debt consolidation loan, you can stick to making a single outgoing payment to the US Department of Education.
  • Get an alternative repayment plan: Yet another way to get rid of defaulted student loans is to set up an affordable repayment plan with the loan lender. Based on their personal financial circumstances, the borrowers have right to request such repayment plans. Loan rehabilitation is also a way of changing the lender of the loan. After you make certain number of payments, the guaranty agency or the US Department of Education will sell off your loan to a new lender and the new lender will put a standard 10 year repayment plan in place. This will ease off the pressure of monthly payments.

Therefore, when you’re spending sleepless nights worrying about effective debt management of your burgeoning student loan debt level, you may resort to any of the above mentioned options. Repaying debt or cancelling debt will help you boost your credit score.

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