7 Smart Ways To Repay Student Loans

For new college graduates who borrowed to help pay for their bachelor's degrees, the clock is ticking. These grads have six months before the federal government expects them to start repaying their students loans.

Here are seven tips to make sure that these young borrowers avoid any trouble as they begin paying down their debt: 

1. Identify outstanding loans
The first step for borrowers is to know what they've borrowed. Debtors can access all their federal loans by logging into the National Student Loan Data System. Keeping track of these loans can be harder than you think. Students could have eight federal loans (one for every semester) or more after graduating from college.
2. Consider the federal repayment options.
There are a variety of ways to repay student debt. The standard method is to make monthly payments over 10 years. Borrowers, however, can be eligible for other repayments plans. The graduated repayment option requires lower payments in the early years with the payments usually growing every two years. Individuals who have borrowed at least $30,000 can qualify for an extended repayment plan, which will stretch the payments to 25 years.
3. Check eligibility for income-based repayment.
One of the big benefits of borrowing through federal student loans is that the federal government provides a safety net for those whose salaries can't realistically cover their debt obligations. Eligible borrowers can essentially repay their student loans based on what they are making rather than what they owe. These programs can be invaluable for students who graduate without a job or are underemployed.
"Pay-As-You-Earn" is the newest repayment program and the one with the most favorable terms. Under the plan, participants pay no more than 10 percent of their discretionary income each month to cover their student loans. The federal government will forgive any debt still remaining after 20 years (unless you're a government employee...then it's only 10 years!).
Keep in mind that these repayment programs won't always be the cheapest solution because the interest keeps accruing throughout the repayment period. If a person loses eligibility for the plan by earning a higher salary, he or she could end up paying more over the life of the loan.
4. Use the Repayment Estimator
It can be confusing for individuals when faced with various repayment options. Before choosing, borrowers should use the "Federal Reserve Estimator" to see which would be the ideal plan for them. The estimator will calculate a person's monthly payments and the potential lifetime cost of the loans.
5. Check out the loan forgiveness program.
Individuals should also check to see if they might qualify for the federal and/or state public service loan forgiveness program. Americans who work for a government entity or a nonprofit can have their loans forgiven after 10 years of payments. Those eligible for the program work in such fields as public education, public libraries, law enforcement, public interest law, early childhood education and public health services.
Borrowers can find out if they are eligible for this loan forgiveness program by completing the Employment Certification form on the U.S. Department of Education's website.
6. Repay loans automatically.
The best way to avoid missing payments is to make them automatic.
7. Consider emergency options.
With all the safety nets, there is no reason for troubled debtors to just stop paying. It can lead to tough late fees and ultimately default, which will ruin a person's credit score and can lead to wage garnishments. Defaulting can also shrink the chances of getting an apartment, obtaining a cell phone plan and even finding a job.  To avoid default, borrowers should explore requesting a deferment or a forbearance from their loan servicer.  With a deferment, a borrower temporarily stops making payments and the government will pay interest during this period on federal direct subsidized loans and federal Perkins loan.
A second, less desirable alternative is obtaining a "forbearance" that allows a person to stop or shrink payments for up to a year. The borrower is responsible for all interest that accrues during this period.

 

This article is from MoneyWatch.com

The Pitfalls of Student Loans!

Whatever you do...don't ever IGNORE your student loans!

Here's 9 good reasons why:

1) You’ll get deeper in debt. Interest will continue to accrue and your balances that seem so daunting now will get even larger. Loans that go to collections will incur additional collection costs of up to 25%.

2) Your credit scores will suffer. Late payments will appear on your credit reports and your credit scores will go down. Negative information may be reported for up to seven years, and for many graduates their credit scores are more important than their college GPAs when it comes to real life.

3) You will eventually go into default. Most federal loans are considered to be in default when a payment has not been made for 270 days. Once you are in default, the government has “extraordinary powers” to collect, as we’ll describe in a moment.

4) You may lose your tax refund every year.  If you have a federal student loan in default, the federal government may intercept it. 

5) Your work income could be garnished.  If you are in default with a federal student loan, the government can garnish up to 15% of your pay. 

6) Co-Borrowers are in as much trouble as YOU. Anyone who co-signs a student loan for you is on the hook 100% for the balance. It doesn’t matter if it was your 80-year-old grandmother who co-signed for you; she is going to be pressured to pay and may be at risk for the same consequences you face.

7) You could be sued. Lawsuits are less common with federal loans than with private ones. (After all, why would the government sue when it has so many other ways to collect?) But a lawsuit is always a possibility especially if you ignore your student loans. If you are sued, you may find you need the help of an attorney experienced in student loan law to raise a defense against the lawsuit.

8) Student loan debt NEVER goes away!  Student loan debt will not go away if you ignore it. There is no statute of limitations on federal loans, which means there is no limit on how long you can be sued. State statute of limitations do apply to private student loans, however, limiting the amount of time they have to sue to collect. But it doesn’t stop them from trying to collect from you — and if you don’t know your rights it may go on indefinitely.

 

9) What to do...when you CAN'T afford to pay on your student loan?

For starters, get your free annual credit reports so you can see which loans are being reported by whom. Then get your free credit score using a service like Credit.com so you have a clear understanding of how this debt is affecting your credit. You can also use the National Student Loan Database to track down your loans.   For federal loans, you can get back on track with a reasonable and affordable payment plan. Start the process at StudentLoans.gov. (Be careful if you talk with a collector or servicer about your options. Some provide borrowers with accurate information, but some do not.) Here’s a guide to options for paying off student loans.

For private loans, you may want to talk with an attorney who understands how to discharge certain private student loans in bankruptcy. It can be tough to qualify, but not impossible. If that’s not an option, you may be able to try to negotiate a settlement.

This article was found on:   Thu, Jun 5, 2014, 4:09pm EDT 

What Happens If I Ignore My Student Loans?

By Gerri Detweiler