Falling to pay your student loans can have some pretty serious consequences. You may remember this guy who was arrested for his student loan debt. While that is an extreme case, it is always important to keep in mind that hiding form the bill collector is usually the worst scenario when it comes to student loan repayment. There are options when you can’t pay your student loans. The purpose of this article will be to outline some items to keep in mind when dealing with student loans
Know What You Owe
This i an important one because so many borrowers do not know the exact amounts that are due. Each time you take out a loan, usually every semester, that is a new loan that will have a subsequent payment attached. Knowing what you owe is the first step and college’s will usually provide you with a breakdown in what is known as a “exit interview.”
Know What You’re Working With
When student loans there are essentially two different types of loans. Student loans are usually either federal or private. Federal student loans usually have a fixed rate associated with them and offer a variety of flexible repayment options. Private loans will vary and will offer much less flexible repayment options to the borrower. Federal loans are almost always more beneficial to borrowers who cant pay student loans bills.
Postpone Payment With a Deferment
A student who is enrolled in school, unemployed, experiencing extreme economic hardship or active military duty may qualify to defer their payments on federal student loans. The subsidized loan will not accrue interest during this time but it is important to keep in mind that any unsubsidized portion in fact accrue interest on the balance of the loan.
To qualify for in-school deferment the student must be enrolled at least part time. Those who are seeking the unemployment deferment must be seeking full-time employment and have to renew this deferment every six months. There is a lifetime maximum deferment of 36 months.
Extend Your Payments
If you took out your federal student loans after October 7, 1998 and have a minimum of $30,000 you may be able to extend the repayment period from 10 years to as long as 25 years. Obviously as you extend the life of the loan, you will be able to reduce the payment but it will ultimately cost you more in interest to pay off the existing loan by extending the repayment.
Graduated Repayment Plan
This option is a good alternative for those individuals who are entering professions where the earning cycle is low in the beginning but increases significantly as you get further into your career. The life of the loan is still 10 years but the beginning payment is lower for first part of the loan. During this time you are simply paying the interest of the loan. During the mid years your payment increases and during last course of the loan you will pay an even larger amount to have the balance paid in full at 10 years.
Income Based Repayment
We have outlined some of these options on our website that many people may find appealing if they are struggling to make their payments. The details of each plan vary but the basic concept is that the repayment amount is typically based on some percentage of your discretionary income and/or family size. This repayment option is good for those struggling but it can result in ultimately paying more than your traditional payment as the repayment is based on your income. If the balance of the loan is not paid in full at either 20 or 25 years (depending on repayment option) , the remaining amount is forgiven.
Postpone Payment with a Forbearance
Forbearance options are available to those who may face similar circumstances as those seeking a deferment. Similarly, the unsubsidized portion of student loans will continue to accrue interest similar to a deferment. In most cases, forbearance is granted solely at the discretion of the loan company. Deferment and forbearance are indeed preferable options to missing loan payments, but to often borrowers are encouraged to enter into one of these options when it may not be interest. Explore all of your options prior to entering into one of these options.
Have Your Debt Forgiven
We recently wrote about having your student loans forgiven here. I would encourage you to explore these options especially if you are beginning to enter the work force. This may be an additional perk that should be accounted when determining your career path. Additionally there may be some who are already eligible but simply are not taking advantage of the forgiveness options available to those in certain career paths. The PSLF program includes a good deal of people and individuals can be enrolled in some of the income based repayment programs sub sequentially during this time.
Main Thing is to Be Proactive
As we mentioned at the beginning of this article, the most important component to your student loans is to remain proactive. Explore the different options that are available to you and do not ever simply ignore the problems. If you get overwhelmed be sure to seek assistance. We can help not only explore your student loan options but show you how each potential payment plan fits into your overall life situation. This is a loan that while there are a lot of variables and repayment options, it will most likely be with you for a long time. Careful consideration must be paid into the repaying of your student loans.