Some borrowers can’t find a job in their field after graduation. Some former students have debt from a degree they couldn’t finish. Others have a degree that isn’t worth the paper it is printed on.
For borrowers who have college debt without the earning power of a degree, repayment becomes exceptionally difficult and frustrating.
The only sliver of good news is the fact that several different programs have been created over the last few years to help borrowers in this situation. These programs are imperfect, but they can help many borrowers with large student loans and a worthless degree.
Sadly, many of these programs only apply to federal student loans. However, there are still options for private loan borrowers.
The Popular Federal Student Loan Forgiveness Options
There is a long list of federal student loan forgiveness programs.
The two most popular forgiveness programs, IDR forgiveness and PSLF, can be life-changing for any borrower.
Public Service Loan Forgiveness – To qualify for PSLF, borrowers don’t need a degree in any specific field. They don’t even need a degree. PSLF requires that borrowers meet three basic requirements: (1) Work for a government or non-profit employer for ten years, (2) enroll in an eligible repayment plan, and (3) have eligible student loans.
It’s critical that any borrower considering PSLF closely review all of the rules and fine print. However, the most important takeaway is that any federal student loan borrower can potentially qualify for this program.
Income-Driven Repayment Forgiveness – Borrowers who enroll in an IDR plan can have their student loans forgiven after 20 or 25 years, depending on the plan. This may sound like an excessively long time to deal with student loans, but it is a path to debt freedom for borrowers overwhelmed with unaffordable debt.
One of the IDR highlights is that many borrowers qualify for $0 per month payments. This keeps debt manageable for people who are unemployed or struggling to get by. Best of all, the $0 per month payments still count towards the 20 to 25 years needed for forgiveness.
Does the federal student loan payment and interest pause count towards forgiveness? Due to the Covid-19 pandemic, federal student loan payments were paused for over three years. Fortunately for borrowers, this time still counts towards IDR forgiveness and PSLF, assuming the borrower is working in a PSLF-eligible job.
Federal Student Loan Cancellation for Borrowers with Worthless Degrees
There are also loan forgiveness/cancellation programs specifically designed for borrowers with worthless degrees.
Borrower Defense Against Repayment – Nobody attends college intending to get a useless degree. In some cases, schools lie and mislead students into signing up. The Borrower Defense Against Repayment Program allows for the total cancellation of these student loans.
Closed School Cancellation – Some borrowers couldn’t finish their degree because their school closed. Others completed their degree just before the school closed and could not find work in their field because of the school closure. If your school closed, you might be entitled to a discharge of all of your federal student loans.
While these two programs may help many borrowers, not all who need help will qualify. Fortunately, there are other options available.
Keeping Monthly Bills Affordable
Thus far, we have focused on federal student loan forgiveness and cancellation options. Sadly, these programs won’t help everyone. Some borrowers won’t qualify for the program they want, and others have private loans that are not eligible for federal relief.
Whether or not you qualify for cancellation or forgiveness, keeping your debt manageable while you pursue relief is essential.
One option that tempts many borrowers with unaffordable loans is a deferment or a forbearance. Other than the Covid-19 payment pause, forbearances and deferments are not good options for most borrowers. The problem with not making payments is that interest accrues, your balance grows, and monthly payments increase. Unless you have a temporary financial hardship likely to end soon, a deferment or a forbearance is likely a mistake.
Instead, borrowers should focus on finding something sustainable. For federal borrowers, this usually means enrolling in an Income-Driven Repayment Plan. For private student loan borrowers, this means working with your lender to find a plan that works long-term.
Sherpa Tip: Ask for lower monthly payments on all of your student loans. If you have one loan that you cannot afford and three loans that you can afford, try to get payments reduced wherever possible. This will make your total monthly student loan bill go down.
Additionally, signing up for lower monthly payments gives borrowers more flexibility in attacking their debt.
Bankruptcy Options
For many years, bankruptcy didn’t offer student loan borrowers much relief. Getting a discharge proved difficult, even for borrowers in dire financial circumstances.
Fortunately, things have recently changed.
A new Department of Justice Policy makes discharging federal student loans significantly easier for borrowers. Under these new rules, borrowers who didn’t finish their degree and borrowers who don’t work in their field of study are far more likely to qualify for a debt discharge.
The new federal rules may also help borrowers with private student loans. Private lenders may feel compelled to follow suit if the government says to the judge that they think a borrower’s loans should be discharged.
If your student loans are unaffordable and things are unlikely to change, talking to a local bankruptcy attorney could be wise.
Private Loan Solutions
Private student loan lenders are notoriously ruthless.
They don’t offer income-driven repayment plans, and they don’t offer loan forgiveness programs. Sadly, converting private loans into federal loans is extremely difficult.
There isn’t a single option or strategy that will work for most borrowers. Some might need to pursue bankruptcy. Others will benefit from repeatedly calling their lender and asking for help. Some might get the best outcome by filing a complaint about their lender with the CFPB.
Lastly, borrowers with a decent credit score and income can refinance their private loans to get a lower interest rate and more affordable monthly payments. Those with a cosigner can also explore this option.
As of April 2024, the following lenders offer the lowest interest rates on a 20-year, fixed-rate loan:
| Rank | Lender | Lowest Rate | Sherpa Review |
|---|---|---|---|
| 1 |  | 6.08%* | Splash Financial Review |
| 2 |  | 6.64% | ELFI Review |
