How to Erase Student Loans

The average yearly tuition at four-year public colleges stood at $7,020 for the 2009-10 school year, up 6.5 percent from a year earlier, according to CollegeBoard. That figure is even more daunting at private four-year colleges, where a year's tuition comes in at an average of $26,273. It's little wonder, then, that with the nation's unemployment rate above 10 percent in early 2010, many college graduates are struggling to afford their monthly student-loan payments. Fortunately, these graduates might find relief from the servicers of their loans. Graduates who convince their servicers that they've suffered a serious financial hardship might persuade them to reduce part or all of their remaining student-loan debt.

Build the evidence that you'll use to convince the servicer of your student loan that you have suffered a financial hardship that makes it impossible for you to make your monthly payments. To do this, make copies of the financial paperwork that verifies your gross monthly income: your last two federal income tax returns and two most recent paychecks. Also make copies of the documents that prove your monthly debt obligations: your credit-card bills and other loan statements.

Call your student-loan servicer at the number listed on your most recent loan statement. Explain that you have suffered a job loss, have been unable to find a job, had your yearly income drop or are going through a serious injury or illness that is preventing you from working. Explain that this financial hardship has made it impossible for you to afford your monthly student loan payments.

Ask your loan's servicer to erase your student-loan debt. Depending on how severe your financial hardship is, you might ask to have all or only a portion of your remaining debt erased. Your servicer might refer to this a reduction of your loan's principal balance.

Write a hardship letter that explains why you can't afford your student-loan payments. Write, too, that you are requesting that your servicer erase part or all of your student-loan debt. It's a good idea to write this letter even if the servicer of your loan doesn't request one.

Send to your servicer by email, fax or mail the copies you made in step one and your hardship letter. The servicer will study this information to determine if your gross monthly income is small enough to make it impossible for you to pay your student-loan payments in their current form.

Agree to the loan servicer's plan to reduce or eliminate your monthly payment. If the servicer determines that you are in serious financial distress, it might erase all of your debt. This won't happen in most cases, though. Usually, the servicer will either erase part of your debt, restructure the terms of your loan or lower your monthly interest rate. All of these solutions will lower your monthly payment.


  • Don't hesitate to call the servicer of your student loan if you lose your job or suffer some form of financial hardship. It's best to tackle the problem before you miss too many payments.