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One College Grad Cut $350,000 In Student Loan Debt. How You Too Can Slash Your Debt.

Student loan debt is at a record $1.73 trillion, according to the Federal Reserve. Black Americans have an average of $25,000 more in debt than their white counterparts, according to the National Center for Education Statistics. However, there are some African-American college graduates that are reducing their debt load. Here are some examples of some success stories.

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California woman racks up medical and student loan debt

Melissa Loe was a typical student who took out federal loans while attending the University of Washington in 1997. However, dealing with her Type 1 diabetes and subsequent medical bills made it difficult for her to pay her student loans when they were due in 2005. She tried income-based repayment, but the arrangement emptied her already low bank account.

When she attended the American Film Institute from 2016 to 2017, Loe took out $200,000 in Grad PLUS Loans to attend the school. Despite graduating from the prestigious school, it was hard for Loe to find work, especially during the pandemic.

“I had to put a lot of things on credit just to survive, including using it for rent a few times,” Loe says. “Los Angeles is a very expensive city to live in with an income, federal and sales tax coming out of your paycheck and a steep gas tax at the pump,” Loe told Forbes.

Loe reduces student loan debt through bankruptcy

Loe decided to file for bankruptcy as a result of her economic woes. She also wanted to discharge her $350,000 student loans as part of her filing bankruptcy. Loe sued the Department of Education as part of an adversary proceeding, a separate lawsuit that’s part of the bankruptcy process.

In order to file for bankruptcy, a borrower has to prove that repayment prevents borrowers from maintaining a standard of living and your income won’t increase. A borrower also has to show they made an effort to pay off the loans before they file for bankruptcy.

She noted that the filing process and language were so complicated that she made numerous errors. “I made so many mistakes it’s ridiculous. God knows I tried. The law is like its own language. And that to me was the most frustrating part,” said Loe.

Since she didn’t have enough money to hire a lawyer, she decided to represent herself in her lawsuit against the Department of Education.

She used software from the non-profit Upsolve to file all the necessary documents. One year after Loe filed a lawsuit, she got the loan discharged. While her complete debt wasn’t erased, her student loan debt was reduced to $7,200. She has to pay $60 a month over the next 10 years. If she misses one payment past a 10-day grace period, her total student loan payment will be due with interest.

Student Loan Forgiveness Changes Help Black Graduates in Public Service and Military

Another way that Black graduates can reduce student loan debt is through the Public Service Loan Forgiveness Program. The Student Loan Forgiveness Program forgives loans for graduates who enter into service occupations like teaching in underserved schools. Now the U.S. Department of Education is wavering requirements like working in a public sector job and having Federal Direct Loans until Oct. 31, 2022.

In the overhaul of the program, graduates no longer have to be enrolled in specific repayment plans like an Income-Based Repayment Plan. Now, if borrowers were in previously disqualified plans, past ineligible payments will count toward student loan forgiveness.

The loan forgiveness is welcome news to Zahra Nealy, a nonprofit worker. She made 111 qualifying on-time payments on her student loans; however, 120 payments are required before the loans are considered paid. Only half of her $140,000 student debt is eligible for Public Service Loan forgiveness. However, with the new waiver, Nealy could potentially have all her loans forgiven and discharged within a year. Nealy told NPR the loan forgiveness could help her and other Black millennial graduates save to buy a home.

“That’s money that I can save and store away, you know, and maybe make homeownership an actual reality, which is becoming unattainable, especially for our generation,” Nealy told NPR.

Military veterans could also count active duty as part of the Public Service Loan Forgiveness program, according to the Department of Education. Service members could be eligible even if they’re not actively repaying their student loans yet.

Student Loan Payoff Tips

Don’t wait until school is about to start to find out how much school will cost, advises Dr. Tisa Silver Canady, a personal finance expert who has advised students on the repayment of $50 million in debt.

“Ideally, borrowers should have a clear understanding of costs — both the cost of attendance for their school and the cost of borrowing — well beforehand. The school is the best source to determine the cost of attendance,” Canady told Finurah.

A good source to find out about loan costs is Studentaid.gov. “It provides details on student loan costs such as origination fees that are charged as soon as a loan has been disbursed and interest which begins accruing on unsubsidized loans upon disbursement,” noted Canady.

Canady also cautions against borrowing from private lenders if possible, since some federal loan borrowers get a loan forbearance since the pandemic started.

“Generally speaking, federal student loans offer benefits that private loans do not such as options for cancellation and forgiveness. A recent example is the CARES Act Forbearance that went into effect in March 2020. The forbearance suspended payments and the accrual of interest for most federal student loan borrowers until payments are scheduled to resume after Jan. 31, 2022. Private lenders were not mandated to provide borrowers with similar relief,” said Canady.

Canady also has these tips to reduce student loan debt.

  • Maximize use of gift funding. Apply everywhere you can, being certain to follow the instructions given by the scholarship provider.
  • File the Free Application for Federal Student Aid (FAFSA) for every year that you plan to enroll, and file early if possible. The FAFSA is often the gateway to other forms of financial aid. Filing it early can help with state financial aid programs and gift aid offered by schools (institutional aid). It becomes available on October 1 every year.
  • Report changes that result in an income loss to your campus financial aid counselor. The FAFSA is based on information from two years prior. Many households have lost income due to the COVID-19 pandemic. Your financial aid counselor can provide next steps for updating your FAFSA and/or appealing to the school for more financial aid.
  • Explore state benefits for college and career students.

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