Student Loan Debt
College graduation should be a joyous and optimistic time. It is about entering into the real world and utilizing what you’ve learned for the last four years. However, for many college graduates, there is the unenviable burden of student loan debt.
According to debt.org, as of 2017, students in the United States owe approximately $1.3 trillion in debt. That means the average college graduate has to pay off $37,172 after earning their degree. To make matters worse, that figure is up six percent from the previous year.
Fortunately, there are solutions to rescue you from your mountain of debt. That way, you can get on the fast track towards financial independence. Here are three different methods to correct your debt:
Student Debt Consolidation
Student debt consolidation is a form of refinancing. It does not come with a credit requirement and often allows individuals to lower their monthly payments by creating a single bill. Depending on the nature of the debt, people may be able to match their monthly payments to their income.
That variation comes from the fact that there are multiple types of student debt: federal and private. Federal is the one that most people recognize. It combines several loans into one through the Department of Education. The goal is to simplify the payment process, though it will not lower the monthly interest rate.
Private student loan consolidation is available for private and federal loans into one private loan. In addition to receiving a single monthly bill, you will also save money and lower your monthly interest rates. However, opting for private consolidation will exclude you from federal loan protection and loan forgiveness programs.
Deciding which option is right for you will depend on your circumstances. If you want to slightly lower your payment or wish to gain eligible for income-driven repayment, you should consider federal loan programs. They can also work for people who have recently defaulted on their obligations and want to get back on track.
Federal student loan consolidation is typically for financially stable people. That can include having an excellent credit score and a full-time job. This form of refinancing is worth consideration is you meet those criteria and have made several student loan payments already after graduating.
Deferment and Forbearance Plans
Deferment and forbearance are another way of putting a pause on payments. The idea is that graduates can gain financial stability without astronomical interest accruing on their debts. That way, when they start making payments again, they can do so without jeopardizing their present well being.
These programs last for up to three years. There will be interest on some of the loans, which lenders add to the end deferment payment. Still, this approach can be a useful tactic, especially if you are unemployed, ill, or in the armed forces.
It is worth noting that deferment and forbearance are not synonymous. If you choose forbearance, you will be responsible for the interest of the subsidized loan. Deferment, on the other hand, comes with several qualifications and will typically last for one year. Guidelines for qualifying come from the Department of Education.
Student Loan Forgiveness
No, it is not too good to be true. There are some circumstances where you can qualify for student loan forgiveness. These will depend on such factors as your income and profession.
Nurses can apply for several forms of loan cancellation. For instance, the NURSE Corps Loan Repayment Program will pay upwards of 85 percent of the existing debt. There are also free federal repayment programs through the Department of Education.
Teachers can apply for the Teacher Loan Forgiveness program if they work for five straight years in a low-income public school. The program will eliminate $17,500 in debt. There also forgiveness options for military personal, doctors, lawyers, healthcare works, and public service professionals.
Alternative Approaches to Handling Student Loan Debt
Tackling student debt often means cutting back in other areas financially. Simply put, you need more disposable income so that you can put it towards your outstanding obligations. Here are a couple of tips and tricks to make the process a little bit easier:
- Carpool when possible instead of driving alone
- Cook at home as opposed to getting takeout or eating at restaurants
- Live within your means by dressing down and buying essential items
- Make the most out of coupons, deals, and other budget-friendly offers
- Start a budget to keep track of your monthly expenses
- Minimize your highest costs, like rent and commuting, by living in more affordable housing and using public transit
Note that these are not meant to solve your student loan debt entirely. These can go a long way towards easing the strain on your wallet, though. More than anything, these recommendations involve time and discipline, and over time you will be able to reap their benefits.
Beware of Student Loan Scams
Hundreds of private companies target struggling college graduates with the promises of debt relief. What often ends up happening is that these programs put the person in a free federal program but still charges monthly fees. Make sure to keep an eye out for these potential red flags when considering a debt relief company:
- They want payments upfront or monthly fees for their services
- The company guarantees immediate loan forgiveness
- A company representative will pressure you into signing up for the program
- They ask you to share sensitive information, such as your Social Security number
- The company’s marketing approach involves social media posts and search engine ads, instead of a building a long-standing reputation
There are more than 100 companies in the United States that appear to be scams. If you do come across one of these bad actors, make sure to report it to the CFPB or the Federal Trade Commission. These agencies use customer complaints to target potentially deceitful companies, and return lost money to the individuals who need it most.
Start creating your path to financial independence with The Pope Firm. Our student loan debt experts will make sure you minimize your obligations while maximizing your potential. Find out more by calling us at (865) 324-0456 today. We have offices located in Johnson City, Knoxville, Kingsport, Chattanooga, and Morristown, TN and want to help you through this difficult period of your life. Contact us, and we can help you to decide how to move forward with the proceedings, and you can have confidence that your steps will be guided in the right direction.
The Different Types Of Bankruptcy
Depending on your situation, there are different types, officially known as “chapters” of bankruptcy, that you can file for. These different chapters of bankruptcy provide different results for different cases, and it’s important to have some knowledge on these chapters before filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a commonly filed for chapter of bankruptcy and is intended for use by low to moderate income individuals with more debt than they’ll ever be able to repay. If properly executed, this chapter of bankruptcy can eliminate most or all of a person’s unsecured debt. If you’re eligible, Chapter 7 could be a great debt relief solution for you.
Chapter 13 Bankruptcy
Another great debt relief solution is Chapter 13 bankruptcy, that works great for people that aren’t eligible for chapter 7 bankruptcy. This chapter allows the debtor, or person that has borrowed money, to restructure their payment plans to be more manageable. At the end of this payment plan, most unsecured debts are discharged, or eliminated. This is sure to provide some much-needed breathing room for those people that feel in over their head, and are in need of some debt relief.
If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.
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Frequently Asked Questions
Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.
There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.
Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.
Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.
Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.
There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.
What are the Differences Between Chapter 7 and Chapter 13?
The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.
Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.
What Other Types of Bankruptcy Are There?
Two other types of bankruptcy are Chapter 11 and Chapter 12.
Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.
Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.
A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.
Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.
Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.
How bankruptcy affects business depends upon the type of bankruptcy filed.
Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.
During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.
Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.
Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.
When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.
- Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
- Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
- Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
- Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
- Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.
Declaring bankruptcy wipes out many debts, but not all.
What Debts are Usually Covered by Bankruptcy?
Bankruptcy can clear most unsecured debts, including:
- Credit card bills
- Medical bills
- Overdue utility payments
Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.
What Debts Are Not Covered by Bankruptcy?
- Child support
- Alimony obligations
- Those related to personal injury or death in a drunk driving case
- Any debts not listed on your bankruptcy papers
No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.
What Debts May Be Covered?
Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.
Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.