Did you know that taking out a Federal Student Loan is just as real as taking out an auto loan or a home loan? Because it’s backed by the Federal Government, they won’t let you declare bankruptcy to get rid of it, nor will they let you off the hook because you lost your job, or you didn’t get the education you expected either. In fact, getting rid of a student loan, short of paying it off, is pretty difficult.
Although your credit history was not taken into account when you received federal student loans, your credit history will be affected if you do not repay your federal student loans under the repayment plan you agreed to when you entered repayment.
Assuming you have some Federal Student Loans that you are having a hard time repaying, let’s look at what your options are for getting rid of student loans.
What Do I Do If I Can’t Make My Student Loan Payments?
Your student loan debt is a legal obligation and can be a 10- to 30-year financial commitment. This type of debt won’t go away by ignoring it. You need to contact your lender or servicer immediately to get help and discuss what your options are. There are many ways to get help, including changing your payment due date, repayment options, deferment or forbearance.
What Happens If I Miss A Student Loan Payment?
If you start to miss payments or you don’t make them on time, as of your first missed or late payment, your student loan will be considered delinquent and you can be assessed late fees. After 270 days of making no payments, your loan will go into default and your credit score will plummet. This can affect you well into the future since derogatory credit remains on your credit report for 7 years. You may no longer qualify for any future student loans that you may need and you may not be able to rent an apartment, buy a car or own a home.
What Is A Student Loan Deferment?
If you meet certain requirements, you may be able to qualify for a student loan deferment. This is a period in which repayment of the principal balance is temporarily postponed to a later date. If the loan is subsidized, the government pays the interest charged during the deferment. You are responsible for the interest that accrues during the deferment period for all unsubsidized loans, including PLUS loans. At the end of the deferment period when you resume making payments, your principal balance will increase by any unpaid interest that has accrued. Now, if you do not meet the requirements for a deferment, you may still be eligible for forbearance.
How Does A Student Loan Forbearance Work?
Under certain circumstances such as a financial hardship or illness, where you are unable to make your scheduled loan payments for a limited time or specific time frame, you may be able to get a student loan forbearance. This will allow you to postpone or reduce your monthly payment amount. You’ll go about requesting a forbearance directly from your current lender or servicer.
For all loan types, you will be responsible for all the interest that accrues during the forbearance period.
That unpaid interest will be tacked onto your principal balance as soon as you resume making payments once the forbearance period is over. If you are serving in an AmeriCorps position for which you are receiving an education award, or if you are serving in a medical or dental internship or residency program and meet certain other requirements, your lender is required to grant you forbearance.
Federal Student Consolidation Loans
You can consolidate several Federal Student Loans into one loan to help make the loan payments more manageable with a federal consolidation loan. There are several types of federal consolidation loans to choose from which offer loan repayments from ten to thirty years, depending upon the amount of your debt. The interest rate is a fixed rate for the life of the loan for both Direct and FFEL Consolidation Loans. The fixed rate is based on the weighted average of the interest rates on all of the loans you consolidate, rounded up to the nearest one-eighth of 1 percent. However, the interest rate will never exceed 8.25 percent.
What Is The Downside To Consolidating Student Loans?
There are some instances where consolidating student loans may not be the best choice for you, even though it may help you lower your overall monthly payments. Certain benefits may be lost (such as cancellation benefits, interest subsidies, etc.) that were offered on the loans being consolidated. Extending your payments or consolidating your loans may not be in your best interest if you are close to having those loans paid off. If you lengthen the term of your loan, interest will continue to accrue during this time, which increases the total amount of repayment.
Student Loan Forgiveness
Some schools may forgive a portion of your student loans if you perform certain types of service such as teaching in a low-income school. This program must be set up in advance, and not be relied upon say if you get a job as a teacher then default on your loan. If you’re an employee of state or local government, you may qualify for loan repayment in return for working in a job that is in great demand. Make sure you check into these options by asking about them at your school or job.
Student Loan Discharge
A student loan discharge means your student loan will be canceled and will no longer require repayment by you. You will qualify for your student loan to be discharged for these reasons, even if you’re currently in default:
• If the school you attend closes before you can complete your program, you are not responsible for your student loans, and do not need to repay them. The loans are canceled in full, and your credit report is not harmed by this.
• False Certification – If you can prove that the school misled you into thinking that you would benefit from their program and the loans or debt you took out was a result of such promises; under certain guidelines, you loans can be discharged.
• Your death
• Total and permanent disability
Student Loan Bankruptcy
In most cases, a loan, whether in default or not, cannot be discharged in bankruptcy. However, you can request a special “hardship hearing” where you present your case to a special judge, explaining why repaying the loans would be an undue hardship. Only a very small percentage of people successfully discharge their loans, so it would be wise to consult a bankruptcy attorney for more information on this option.
Helpful Tips To Pay Off Those Student Loans
• Whenever possible, buy use books instead of new ones.
• Activities sponsored by your school are free and can save you money versus going out.
• If you don’t stay within your free minutes on your cell phone plan, these costs can add up. Make sure to know what your plan is, and stay within the allotted minutes.
• Eating out can be very costly. If you have a prepaid meal plan at school, use it instead.
• Let’s face it, Starbucks is expensive. Get yourself a coffee pot and some flavored creamer.
• Use coupons when you shop and try to stick with a plan of buying just what you need and not what you want on impulse.
• Don’t get more than one credit card and make sure you only use it for emergencies. These charges and monthly payments can add up very fast and get overwhelming in a very short period of time. If you do charge, only charge what you can pay-off every month.
