Photo: Alex Slobodkin/Getty
By Jean Chatzky
July 23, 2014

Last this week, Benjamin Snyder reported in Fortune.com that the state of Illinois was taking on debt settlement companies targeting students looking for relief from their student loans. “Lisa Madigan, the Illinois attorney general, filed two lawsuits targeting firms that charge as much as $1,200 upfront to help students with loan repayment problems,” he wrote.

The fact that Madigan decided to forge ahead on this shines a light on the huge problem student loan debt has become. The average tab of nearly $30,000 per student (and much more for many) is so onerous that borrowers are willing to pay four-figures for relief that they could actually get themselves without paying a dime.

Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a financial aid information site, notes that there’s nothing illegal about businesses charging you to do something you could do yourself for free. Tax preparers, for example, do that every day. “Where debt relief businesses sometimes cross the line is in misrepresenting the nature of the services they provide and their affiliation with the U.S. Department of Education,” he said. He also notes that accessing many of these solutions yourself is “much easier” than filing a federal tax return. That said, here are some legit routes to relief.

Choose a different repayment plan.

A standard federal student loan repayment plan lasts for 10 years. If you pay off on this schedule, you’ll pay less interest than by swapping into a different repayment plan. But if you’re struggling to make loan payments, there are other options. (Note: These apply to Federal Direct Loans and Federal Family Education Loans, including the Parent PLUS Loan and Stafford Loans.) Graduated repayment – also 10 years – starts with a lower monthly payment and ratchets up every two years. Extended repayment can be established with either fixed or graduated payments and can last up to 25 years. And, if you qualify for them, the Income-Based Repayment or Pay As You Earn programs cap your monthly payments at 15% and 10% of your discretionary income respectively, then forgive any remaining debts after 25 or 20 years, respectively.

If you’re working in a helping profession that qualifies they may be forgiven after 10. You should also check with your lender to see if they have any programs you can qualify for. Sallie Mae, instance, offers a period of 12 interest-only payments to new grads who have loans in good standing, according to spokeswoman Martha Holler.

Look into consolidation

You may call your lender told you that they don’t offer Income-Based Repayment or some of the other aforementioned options. In that case, look into consolidating through the Department of Education at studentloans.gov, although it won’t necessarily lower your payments. Your new rate is the weighted average of your current loans’ interest rates, rounded up to the nearest 1/8% (you can use this calculator). However, consolidating your loans will make your life easier, at least administratively. And it will allow you to take advantage of the aforementioned repayment plans, too. (Note: If your lender does offer the various payment plans, chances are it will offer consolidation as well. It’s fine to go that route, but remember that if just because your lender says it can’t consolidate your loan, doesn’t mean it can’t be consolidated. What it does do is send people running to consolidation companies and, again, paying good money to do things they could do themselves through Studentloans.gov. It’s also important to understand consolidating is not the same thing as refinancing your loans with a private company. That may actually cost you access to some of the repayment plans.)

Work on your credit, then consolidate private loans.

Private student loans are a horse of a different color. There are, Kantrowitz says, about a half-dozen lenders that offer private consolidation loans. These are tied to your credit, however, so borrowers who are struggling are unlikely to qualify. He also notes that immediately after graduation is not the best time to consolidate. (Every year you’re in college, your credit score goes down because your credit utilization goes up). So wait a few years, pay off your credit cards and pay down your student loans and your score will start to increase. Meanwhile, work your student loans like a credit card avalanche. Target the one with the highest interest rate for immediate repayment. Throw all of your extra cash against that, then move onto the next highest and so on. Eventually, you’ll get out from under.

Steven Goldstein contributed to this report.

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