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Restructuring student loan payments is tough under current rules

Student loan debt has been a significant source of discussion across the country and on this blog. This isn't surprising, especially considering that average student debt loads are climbing to new levels. The problem, for many people, is that payments are simply too high relative to monthly income.

In general, most student loan payments begin to kick in six months after people leave school (whether or not they've graduated). Unemployment or underemployment can cause a person to fall behind -- or come very close to it. Bloomberg reports that the federal government has six options for restructuring payments. Four of the six options are reportedly quite confusing, which might provide an explanation as to why participation the restructuring programs is low.

In response to the large set of complicated repayment options, a group of five organizations has unveiled a new repayment program. According to the new plan, the default payment schedule would be scrapped for payments that are a percentage of income. Loan terms are also tied to the amount of debt a particular person has, based on the suggested reforms. Additionally, it's been suggested that payments are automatically deducted from paychecks, similar to Social Security collections.

Of course, this is only a suggested reform. Nothing has been put into place yet. Regardless, the main purpose of the suggested changes is to make student loan repayment simpler, especially given that personal bankruptcy is not an option to discharge student loans.

No one wants to deal with the possibility of falling behind on student loans -- particularly in the immediate wake of graduation. However, a sluggish job market has made the situation difficult for recent graduates. Ultimately, the hope is that people are able to find solutions when monthly loan payments simply become too much to handle.

Source: Bloomberg, "A Proposal to Radically Simplify Student Loan Payments," Karen Weise, March 24, 2014

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