Some college graduates face tough financial challenges when the time comes to start repaying their student debt. Here are some things to keep in mind that can make your life a little easier.
A young man I know recently graduated from college with a bachelors degree. Along with his fresh degree, he has a student debt of over $44,000 dollars with scheduled payments that will exceed $500 per month. To compound his problems, he is working a temporary job, and will be laid off at about the time he needs to begin making payments. If you face a similar situation, it's important to carefully weigh your options.
What are your options?
Obviously, the best thing to do is to repay your loans in the way you agreed upon. Be proactive before your payments begin. However, what can you do if you absolutely cannot afford the payments that you are facing.
Not paying - going into default
This really isn't an option. If you can avoid it in any way, do not allow the loan to enter into default. Default will negatively affect your credit for a very long time to come, and will make your life much more difficult.
Bankruptcy is also not viable. Some people have the mistaken idea that if they can't afford to make their payments, they can simply file for bankruptcy and have their loans discharged. However, in all but the most extreme cases, that is not allowed. For instance, in 2008 over 72,000 borrowers tried to discharge their student loans in bankruptcy - only 29 of them were able to prove "undue hardship". Even if the person does manage to prove hardship, they will likely only have the amount reduced - not removed.
Consolidation - reducing the amount of your monthly payment
Consolidation loans allow you to combine different types of federal loans to make repayment easier. Even if you just have one loan, you can choose to consolidate it. By doing so, you essentially refinance it, which can provide lower monthly payments and longer repayment term - up to 30 years. However, be aware that a consolidation can significantly increase the overall amount you will pay for your education.
Postponing payments through deferment or forbearance
Although you select which repayment plan you want when you first begin repayment, keep in mind that you can switch plans later if your financial situation changes.
Deferment
During a deferment, your payments and interest are deferred. You can defer your loan payments for certain situations. Military service, part-time college attendance and being unable to find full-time employment are several reasons.
Forbearance
If you are ineligible for deferment, you may be able to get a loan forbearance. During this period, you may not be required to make payments, but interest is typically still being accrued. This can be very costly, and if you do enter into a forbearance arrangement with your lender, you should pay what you can as soon as possible to minimize the amount you pay in interest.
Loan forgiveness
If you are fresh out of college, and just starting to make payments, you are unlikely to be eligible for this program. However, if you plan accordingly and integrate it into your career path, you can potentially reduce your student loans by a substantial amount in the future.
The Public Service Loan Forgiveness Program gives you the opportunity to have the balance of your loans forgiven. To be eligible, you must make 120 on-time monthly payments and be employed full-time in a public service job during the same period in which the payments are made.
Be proactive when it comes to repayment.
Simply being proactive and responsible now will make your life a lot less stressful as you repay your loans.There are many options available to help you. Begin looking for alternative solutions as soon as you think you might have trouble paying. Don't wait until it's too late and you are missing payments.
These programs are subject to quite a few exceptions and conditions. So even if you think your ineligible, it's still worth reviewing to find out for sure. Learn the facts for yourself rather than relying on what you hear other people say.
You can find more information and options for repayment of Federal Student Aid loans here: http://studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp
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