Graduating from college should open doors of opportunity for new graduates, but a slow economy has made it difficult for many people to find jobs or at least sufficient employment to pay their expenses including their student loans. Fortunately, there are repayment options graduates can take in a bid to pay back what they owe.
1. Choose an income-based repayment plan — Your income is low, so why not choose a repayment plan that requires smaller monthly payments? Under the income-based repayment (IBR) plan, you can place a limit on the amount of money you pay each month, to as little as 10 percent for loans taken out after 2012 (15 percent for earlier loans). After 20 years, the remainder of your balance is forgiven (25 years for older loans).
2. Graduated repayment plan — For many students, stepping up payments as you go through life is the best option. Thus, a graduated repayment plan is something to consider, especially if you expect your income to rise over the coming years. Under this plan payments are made for 10 years. However, if you have a consolidation loan, then repayment can take from 10 to 30 years to complete.
3. Extended repayment plan — Students who took out directed subsidized and unsubsidized loans, including federal Stafford loans and PLUS loans might consider an extended repayment plan (EPR). Under EPR, payments may be fixed or graduated and borrowers have up to 25 years to pay their loans back.
4. Direct loan program borrowers — Graduates that borrowed money under the direct loan program may qualify for an income-contingent repayment plan. This plan is based on your personal income, family size, and your total direct loan debt. Under this program you make payments for 25 years. After that, any outstanding balance is forgiven.
5. Ask for a deferral — Typically, student loan repayment must begin six months after you graduate college. Fortunately, you are allowed to seek a deferment, based on a few different criteria including: you are unemployed or experiencing financial difficulties, you’re active in the military, or you are enrolled in a college or university at least half time. The good news about a deferral is that eligible loans (subsidized) do not accumulate interest while payments are postponed.
6. Ask for a forbearance — Like subsidized loans, these payments can be postponed as well. The terminology, forbearance, sounds the same as a deferral, but there is one important distinction: your interest payments will continue to accumulate. Still, without having to make any payments for an extended period, a forbearance may be what you need to help you get on your feet.
Repayment Problems
If you run into repayment problems once you begin to make payments, you should let the lender know. Ignoring the problem will affect your credit score and your very livelihood. Being open with your lender can start a conversation on other payment plan options.
Another option is loan cancellation and forgiveness. Your loan may be canceled if you can prove fraud on the part of the school, a very rare situation. Forgiveness may be earned if you choose to work in certain professions such as nursing, education and the military. These are not common options, but they are available nonetheless.
See Also — What if Your Student Loans Survive You?
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