Mike Dominguez is the first to admit he should have gotten on top of his student loan debt earlier.
"Looking back, I could have done a lot of things different," says Dominguez, 33, who lives in Austin, Texas, and recently started a business with his father, selling goods and professional services to government entities.
Dominguez has $71,000 in student loan debt from earning an undergraduate degree at the University of Texas at Austin. He hasn't paid off a dime of his balance yet and cites living too extravagantly in his 20s and taking on low-paying internships as obstacles. But his credit score is still healthy, and he's still in good standing with his lenders, who have helped him refinance and consolidate and defer the loans. He feels optimistic that he'll eventually pay the loans off. Someday.
But the debt has been stressful, says Dominguez, adding that it has hurt his love life. "No one wants to be saddled with that type of debt or even marry someone with that amount of debt," he says.
Dominguez feels his story is "rather common," and unfortunately, he is right. U.S. student loan debt exceeds $1 trillion, according to the Consumer Financial Protection Bureau. And last month, a report from the Government Accountability Office got a lot of attention when it pointed out that between 2005 and 2013, student loan debt among seniors 65 and older climbed more than 600 percent from $2.8 billion to $18 billion.
"Student loans are tricky to get rid of, presumably because we want to make sure our citizens are well-educated," says William Waldner, a bankruptcy attorney in New York City. "If they were easily dischargeable, lenders wouldn't give them out nearly as liberally."
So if you're struggling to pay off or manage your mountain of student loan debt, here are some strategies consumers employ, along with the pros and cons of each.
What it is. With this option, you defer paying your loans for a few months or possibly years. You may already be doing that if you're missing payment dates, but now you'll have permission from your lender.
Pros. You get a break from paying your loans with no hit to your credit score. You can use the extra money to pay off other debts, so you'll be in better shape when you start paying off the student loans. Even better, the government may (emphasis on "may") pay the interest on some of these loans, according to the Federal Student Aid website (studentaid.ed.gov). Specifically, it may pay the interest during this time on the Federal Perkins Loan, a Direct Subsidized Loan and/or the Subsidized Federal Stafford Loan.
Cons. If the government doesn't pay the interest, you will. In that case, Chuck Mattiucci, a financial advisor at Fragasso Financial Advisors in Pittsburgh, has a plan. "Most banks and lending institutions will allow interest-only payments while loan principal payments are in deferral," he says. "This would be the best option for most because the interest payments are a fraction of what the monthly principal and interest payments would be."
What it is. It's essentially the same as deferment, with one difference: If you are rejected for deferment but are given forbearance, you will definitely be paying the interest that accrues during your break in making payments.
Pros. As with the deferment, you get a break from paying your loans.
Cons. As noted, the infernal interest. Usually, the interest you've accrued will be added to the principal balance, so you've just stretched the length of your loan, and you'll pay more in the long run.
What it is. Consolidation turns multiple loans into one loan, meaning one payment. If you have federal loans, you can apply to consolidate them at StudentLoans.gov. If you have multiple private loans you'd like to consolidate, you can apply to a private lender, like a bank.
Pros. Instead of having two or three or eight student loans to pay off, you'll just have one, often with a lower monthly payment. That's the main draw for a lot of consumers. Also, only having to make one monthly payment could help your cash flow.
Cons. The interest will be whatever the average is of your loans, and it's possible that by consolidating your loans, you may pay more in interest in the long run.
Federal student loan forgiveness
What it is. In this case, the federal government will cancel part or all of your federal student loans. You have to apply for it and can download the application at the Federal Student Aid website.
Pros. Pretty obvious: You'll have no or less debt.
Cons. Not only is it a long shot, but you'll only be able to qualify in certain circumstances, such as working in the military or for certain nonprofit organizations or teaching or practicing medicine in low-income and rural communities. In other words, if you're doing something noble with your career and you're not likely to earn a lot of money, you may be able to get out of paying your student loans.
Student loan bankruptcy
What it is. This isn't much of a strategy, and it's generally something that people who feel buried under student loans wish could happen. You may end up going through bankruptcy, but odds are, you'll emerge with your student debts in tow. "There is a hardship discharge, but this is a very difficult thing to show," Waldner says. "If we can show that the debtor can't work or earn income and hasn't been working for a long period of time, the debt may be dischargeable."
Pros. Who wouldn't want to get rid of their student loans?
Cons. This is another long shot, and if you go into bankruptcy and try to unload your loans, "the student loan company will likely fight this, and the result will likely be a full-blown trial," Waldner says.
And, of course, a trial is likely unrealistic. If you can't afford to pay off your student loans, you probably can't afford a trial.