These are the latest options to cut your student debt payments with help from private lenders and the government. Many graduates are regretting their decision to pursue a college education as it does not improve their income while more than 50% of their paycheck goes into student loan payments. With very little principal payments made, these borrowers may take several decades to become debt free. Unlike home buyers or car buyers, they will not own any asset of monetary value except their degree certificates.
Among the graduates in 2011, 20% have at least $50,000 student debts, and this number is still growing. due to poor employment prospects among new graduates, the default rate for student loans are also increasing.
Do you know that filing for bankruptcy will not be able to solve student debt problems? It is very difficult to convince the judge that paying your federal and private student loans will cause “undue hardship” or “certainty of hopelessness”. Unlike credit card debt settlements and other consumer loans, there are very strict bankruptcy rules on student loans so do not think you can easily discharge them. However, the government do provide some ways to reduce payments on federal student loans and even try loan forgiveness. As for private student loans, some lenders are now willing to negotiate new payment plans with the borrowers.
Several years ago, you can easily get private student loans even if you have bad FICO or no established credit history. These are tell tale signs that borrowers cannot afford paying back the loans, and that is whats really happening with the large number of borrowers defaulting on student loans. Now the lenders are willing to offer interest-only payments or reduced monthly payments to help borrowers cope with their private student debts. If you find it tough to keep up with your current payment plan, check your promissory note to see there are such provisions.
Alternatively, ask your lender for student loan forbearance meaning you can skip payments for 3 months to 12 months. Meanwhile, the interest will continue to accrue. Many lenders are now willing to offer forbearance since it gives borrowers a chance to get back on track with payments. Whatever your decision, do not simply do nothing as it will cause serious damage to your borrowing history.
For federal loans, you can fall behind payments for many months before considered as defaulting. However, if you stop paying back private student loans for 1 month, debt collectors will start calling you. While the Fair Debt Collection Practices Act protects consumers from abusive collection practices, lenders simply engage third-party collection agencies to do the dirty work absolving them of the legal responsibilities. Not a good idea to borrow 300 short term loans in order to cover such payments either.
Private student loan lenders can also go to court to get back the money you owe. If you get sued for student loan default, they can garnish your wages, put a lien on your car or home and even tap your bank account. Check out your state’s statute of limitations regarding loan defaults, which is typically 6 years.
If you have a federal student loan, there are several payment plans available to help you. For Stafford and Grad Plus loans, the standard plan consist of 120 equal monthly payments over the next 10 years. Most people prefer the graduated plan, where you make smaller payments in the first few years and larger payments on the later years. This is assuming your income gradually increases over the years. However, taking the graduated plan means paying more interest fees since you pay down lesser principal from the start.
If you owe more than $30,000 on federal student loans, the extended repayment plan allows you to pay over 25 years. In exchange for lower monthly payments, you end up paying more interest costs. You can also consolidate your federal student loans through the Federal Direct Loan program at www.loanconsolidation.ed.gov and extend your payments by another 12 to 30 years.
If your total federal student debt exceeds your annual income, there is also the income-based repayment plan. For some cases, your payments can be reduced to nearly zero. And after 25 years, all remaining debt will be forgiven except for taxes on the forgiven amount. However, if you get a big income increase while on the income-based repayment plan, you will be reverted back to the standard 10 year repayment plan.
For graduates working as cops, public school teachers and other full time employment in the public sector, you can cancel any remaining federal student debt after 120 payments. To be eligible, your loans must be under the new Federal Direct Loan program, and not the previous FFEL from private lenders. However, you can still consolidate FFEL loans into the Direct Loan program and your forgiven amount is tax-free.
For borrowers who are currently unemployed, experiencing economic hardship, attending school or on active duty in the military, you can choose to defer federal loan repayments for up to 3 years interest free. Alternatively, try asking for federal loan forbearance, suspending payments for up to three 12-month periods. During forbearance, interest will continue to accrue on the owed balance.