If you are having trouble paying back your student loan debt, the Department of Education has options that will give you more protection from debt collectors collecting on federal education loans. These regulations should make it easier for you to get your federal student loans out of default.
These rules do not apply to private student loans, only to loans made or guaranteed by the federal government. For example, if you are in default you can”rehabilitate” loans by making nine “reasonable and affordable” on-time payments during a period of 10 consecutive months. You must agree in writing to make these 9 voluntary payments (as determined by your loan holder) within 20 days of the due date. This will allow you to get out of default and become eligible for further federal student aid or other repayment programs. Keep in mind that Student Loan Rehabilitation is a 1-time opportunity only. It cannot be repeated.
Some private debt collectors who were collecting on federal loans fail to offer payments that borrowers can afford; instead offering payments based on a percentage of the borrower’s total debt. Such payments mean increased commissions for the collection agencies, but are unworkable for borrowers. Some debt collectors try to also demand minimum monthly payments without telling people about the more affordable alternatives, even though the laws of federal student aid does not require those minimum payments. In 2014, the Department of Education really cracked down on these practices.
The rules require that borrowers who want to rehabilitate their loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option would cap a borrower’s monthly payments at 15% of their monthly income.
These rules also allow borrowers who have been delinquent at least nine months to request “forbearance” on their loans. This request must be done in writing. Forbearance means you do not have to make monthly payments, but the interest continues to be added to your loans and this can leave you further in debt.
There is also the option to Consolidate your Student Loans by agreeing to an income-based repayment plan.
If you have tried to work with the options provided by the Department of Education and cannot get approved or cannot meet what they may call a “reasonable and affordable” payment, filing a Chapter 13 bankruptcy is always an option. Here, you control what is reasonable. If $0 is all you can afford, then you can set your payments to $0 for up to 5 years. You determine what you can do and the courts back you up.