Student loan debt -- how to get relief

(CNN) -- We can all count on the certainty of death and taxes. But many of us can add student loan debt to that list. The average student graduates with about $21,000 in debt these days.

"It's getting far harder for students to pay off their loans," says Alan Collinge, of Student Loan Justice, a grassroots organization that lobbies for student loan reform. "Student loan debt has reached overwhelming proportions. This is a burden no other generation has had to face," he says.

If you're having trouble making your payments, there are some programs that can provide some relief.

If your income isn't sufficient to repay a federal loan, you can apply for an economic hardship deferment or forbearance which would suspend or reduce your monthly payments. However, keep in mind that the interest will continue to grow on loans that are not federally subsidized.

To find out if you qualify for these programs, check out the hardship calculators at http://www.finaid.org/, a financial aid Web site. If you do qualify, try to pay an amount equal to the interest payments so you're not digging yourself deeper into more debt.

If your money problems are more long-term -- say your career path doesn't pay well -- there are some alternate payment plans that you can explore. An extended repayment plan could lower your payments while increasing the life of your loan up to 30 years. Just remember that stretching out your payments will increase the total amount you repay over the life of the loan.

For example, if you have $20,000 in debt in a standard 10-year repayment period and you stretch that out to a 20-year repayment period, you'll be cutting your bills by 34 percent, but your interest will more than double over the life of the loan according to Mark Kantrowitz of Finaid.org.

If you have federal loans through the Direct Loan program, you may qualify for an income contingent repayment plan. Your payments are based on your income and your debt load.

There will be another relief program available in July 2009 called an income-based repayment program. It works like the income contingent plan, but it's more generous because you can make a higher income, yet pay less per month.

The loan terms on the two programs require payments for up to 25 years. After that time, the remaining debt will be forgiven. And if you work in the public sector -- for example if you're a teacher or a public defender -- your student loan debt is forgiven after 10 years if you're on one of these plans.

Keep in mind that these are steps you can take before you default on your loan. If your loan is already in default, you won't qualify for deferments or forbearances.

Private loans -- which are more expensive than federal loans -- now account for nearly one in every four dollars of student borrowing, according to a new study by the National Consumer Law Center.

You don't have as many repayment options for private student loans, according to Kantrowitz. But if you find you're having trouble making payments, let your lender know. It's possible you can get your bill lowered temporarily or have your payments suspended for a while. "Lenders would rather see you making payments than to go after you for payments," he says.

If you've been paying your private student loans on-time for a few years, you may be able to get a lower interest rate if you consolidate them. Your interest rate is based on your FICO credit score. So, if your credit score is higher now than when you originally got your loan, you could save a lot of money.

Think ahead if you are still in college to keep your loan balances low. For instance, you can appeal to the college to give you more financial aid. If you think your financial aid application, known as FAFSA, is inaccurate because of a recent and unusual circumstance like a job loss or disability, ask the financial aid office for a professional judgment review.

Document the paperwork that proves this hardship, either a pink slip or a copy of your un-reimbursed medical bills. Send it into the financial aid office by certified letter. The college will generally do a case-by-case review of your situation. These days you might get a more sympathetic ear. "There has been a slight increase in people requesting these," says Kantrowitz. "And schools have become more consistent in their decisions."

The bottom line: If you can't keep up with your student loan payments, take action. There are very severe penalties for defaulting on a student loan.

For example on federal loans, if you don't make payments for 270 days, the government can garnish your wages up to 15 percent and a portion of your social security may be withheld. Your federal and state income tax can intercepted and directed to your loan. You may not be able to renew your state professional license. And, you can be sued for the immediate payment of full loan amount. Plus, you'll probably have to pay collection charges up to 25 percent.

Some private student loans will be put in default if you're 30 days late making a payment.

Even if you declare bankruptcy, it is very difficult to get a student loan discharged.

Even when borrowers die, private lenders may continue to seek payment from the borrower's estate. E-mail to a friend

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