Your 2011 Debt Crisis Guide

If you're deep in debt and you've run out of options, use this guide as part of your plan of attack

companies that offer their services via phone to disclose fees and estimate how long it will take to resolve a case, and the companies can no longer charge up-front fees. “If anyone asks for money up front, go elsewhere, because they aren’t following the rules,” says Detweiler. If your debt is forgiven through settlement, be aware that you may need to pay taxes on the forgiven amount.

Know your options. Today’s typical college grad leaves campus with more than $27,000 in student loan debt, and that figure has risen about 6% annually over the past five years, says Lynnette Khalfani-Cox, author of Zero Debt for College Grads (Kaplan Publishing; $14.95). Loan forgiveness programs can help. For example, those employed by a federal agency can make use of the federal student loan repayment program. Through the program, any federal agency a graduate works for can pay off up to $10,000 annually in federal student loans, up to a maximum of $60,000. For more information, visit

If you’ve fallen on hard times, speak up. If your federal loan is in default, filing a statement of financial status with the U.S. Department of Education may reduce your monthly payment. “You can also get forbearance if you’re unemployed,” Khalfani-Cox adds. You will still be charged interest, however. In addition, there are several payment options (among them, standard, extended, graduated, and income sensitive). With the income-sensitive and extended payment plans, for example, you can pay as little as $25 a month for up to 30 years. To learn how these options work, go to Khalfani-Cox advises paying what you can afford. “With federal regulations and reform, starting in 2014, new borrowers who pay their loans on time can have their remaining balances forgiven after 20 years.” Those who work for certain nonprofit, tax exempt, 501(c)(3) organizations can have their loans forgiven after 10 years.

Consider consolidation. As long as your loans are not delinquent or in collection, you can consolidate them into one new consolidated loan. To find out if you qualify, contact the Federal Direct Consolidation Loans Information Center. If you’ve already defaulted, you must bring your loans out of default by making three monthly payments on time in any amount you and the lender agree to. Read about the pros and cons of a consolidated loan at Be aware that consolidating a defaulted loan does not remove the default from your credit report.

Take steps toward rehabilitation. To rehabilitate a defaulted federal student loan, contact the loan holder. If you don’t know which organization holds your loan, call the Federal Student Aid Information Center at 1-800-433-3243. Be prepared to make nine consecutive payments in the amount you and the loan holder agree to. Loan rehabilitation removes the default from one’s credit report; though, of course, it’s better to avoid defaulting in the first place. Khalfani-Cox estimates that nine

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