Taking out federal student loans is a lot like orderingfood at a fast-food establishment.It seems like a great option at the time, but very soon after you end up paying for your decision.
But even after grace periods fade away and the impoverishing effects of student loans begin to kick in, there are concrete steps that students can take to make the loan repayment process easier.
Sometimes, the simplest advice is the best advice. Being proactive and actively monitoring your debt, primarily by knowing what payback options are available and communicating with your lender, can alleviate the process. For low-income students and graduates, there are a whole host of extra options.
Logging into the federal government’s online loan database, surmising your debt, checking it for accuracy and reaching out to the government in order to develop the best payback option are crucial first steps toward establishing a responsible fiscal relationship with your lender. Several hotlines exist for just this purpose.
After taking these initial steps, it is important to understand what your minimum payment will be. One option for graduating students who received qualified loans and demonstrate partial financial hardship have the option of choosing “income-based repayment”. Under this repayment plan, 15 percent of your disposable income would go toward paying for your education. You will be required to make payment for 25 years, after which time any remaining amount due would be forgiven, though tax penalties may be incurred.
Borrowers who withdrew debt as of Oct. 1, 2011 can be put into a “pay as you earn” program, which means you contribute 10 percent of your disposable income toward student loans. After 20 years, your loan would be forgiven, sometimes with a tax penalty.
Those are the standard-practice payment plans. However, it is always possible, given extenuating circumstances, to have your rate adjusted. Knowing what to expect already gives you a leg up when haggling for a deal that best fits your situation.
If you can prove that your job meets certain criteria to be considered “public service” – such as working for a non-profit organization, the state or federal government or other organizations – you can enter into a 120 month pay-off plan that will pay the entirety of your debt. However, you may be responsible for paying taxes on the forgiven amount.
So if you work as a qualified public servant for 10 years, a portion of your debt would be forgiven.
Another way in which you can restructure your debt is to consolidate it.
For outstanding loans in excess of $30,000, the government will give you an extended period, usually 30 years, to pay it off. If you are a student who has taken out three, $10,000 loans at varying interest rates, you have the option to merge them into one loan, which can help manage repayment.
This will qualify you for the extension and the federal government will then apply a weighted average to your consolidated loan based on the interest rates of the individual loans. The new loan amount can make you eligible for additional repayment options, which means you may end up paying less over the life of the loan.
Given that none of these options sound even remotely promising speaks to how broken the student loan system is.In a better world, students would not continue financing their education 10 to 30 years after graduation, but would instead be pumping that money into the economic machine.
However, inequity is no excuse for ignorance.Keeping on top of your loans – whether private or federal – and knowing all the pertinent information beforehand, can give a person an advantage in overcoming their debt.
The options above give only an aerial view of this issue.There are individualized plans that can be arranged, but like the rest of this matter, it requires personal initiative: You need to take the first step.
Taking out loans is not a great situation, but it is manageable. Until effective change is put into place, it is up to us to educate ourselves on how to manage our debt.