Welcome back for part 2. The subject today is student loan debt and how to dig your way out of it. In part 1 we talked about some of the consequences of not paying your loans on time. They were going to be looking at your options to continue paying, avoid those nasty collection agency people and keep your credit score from taking a big hit. So if you’re ready, let’s get started. Enjoy.
If you have federal loans, including Perkins, Stafford and Grad Plus loans, you’re in luck because you’ve got a number of options that you can use. (Keep in mind that the Perkins loan differ somewhat from the other two options. Check with your school to be sure.)
The first plan that’s offered is called the Standard Plan and, if you choose to use that one, you’ll be done paying off your loans after 10 years and 120 equal payments. For those people who can’t afford payments that high now but expect to be making more money in the future, there is the Graduated Plan. With this one, your payments are lower in the beginning years and higher towards the end of the 10 year span. Keep in mind that, even though you’re paying less during the beginning of the plan, you’re going to be paying more interest overall for the Graduated plan.
For those people who owe $30,000 or more to the federal government there is the Extended Repayment Plan. This plan gives you 25 years to stretch out those monthly payments and they’ll be much lower per month but the overall cost will be higher. Depending on how much you owe, you can also consolidate your federal loans through the federal Direct Loan program which will extend your payments from 12 to 30 years. (If you’d like to research more about this, surf to www.loanconsolidation.Ed.gov)
If your federal debt outstrips your annual income you may wish to look into Income Based Repayment Plans, a payment program that is definitely better than the 1st two and, in some cases, will reduce your payment as far down as zero. If your total debt exceeds your annual income you will probably qualify and, after 25 years, any debt that you have remaining is automatically forgiven. You will owe taxes on the forgiven amount however, and if you end up getting a much larger salary, the standard plan will be used to calculate your payments from that point onward.
If you’re a police officer, a public defender, a public school teacher or are in some way working in the public sector, after 120 payments you may qualify to cancel any remaining debt that you have that was accrued on or after 1 October, 2007. You must have federal Direct Loan program loans in order to be able to qualify and you can consolidate FFEL loans into that direct loan program. With this program be forgiven amount is also tax-free.
If you suddenly become unemployed, you’re attending college at least half-time, you’re experiencing some type of economic hardship or you are in the military on active duty, you automatically have the right to defer any federal loan repayments for as long as three years.
Finally, if deferment is an option in your case, you can ask your lender for a forbearance. Remember that with the federal loan you can also suspend payments for 12 month periods at least three times, depending on the amount of money that you owe the federal government and the amount of money that you earn. You may not qualify but you should definitely ask because it’s in the lender’s best interest to give you the time you need to get your finances in order. Also keep in mind that during forbearance interest will accrue.
If you’re swimming in a sea of financial aid that we hope that the last two blogs have been helpful and have given you a number of ideas about how to go forward with your student loan problems. As with any financial problem, it’s always a smart idea to talk with lenders, be they private or federal government, and advise them of your situation. In most cases, they’d rather help you somehow then let you go into default.