Are you a new college graduate with Student Loan debt? You are on the clock. A six month clock. The six month mark is important because it marks the end of the grace period on student loans, and time to start paying your Student Loans.
While the job market has been improving, some graduates are not finding jobs or feel a bit overwhelmed with the amount of debt they have accumulated. Defaults have been running close to 10% and the default rate has risen quite a bit in the last 7 years. Many others are delinquent.
Defaulting on a student loan could be disastrous. Failure to make a loan payment for 270 days or more constitutes default and collection costs are tacked on to the student loan principal. You could easily rack up thousands of dollars in unnecessary costs by defaulting. Also, your wages may be garnished and your credit score will be drop substantially.
If you have federal student loans, you have options. Listen to my full podcast below.
1. Reducing your payments: Unemployed or underemployed borrowers may be eligible for a variety of income-driven repayment plans to pay back Federal Student Loans.
- While the standard repayment term is 10 years, the government could extend your repayment schedule to 20 to 25 years if you qualify. If you haven’t paid off the entire balance by then, the loan may be forgiven.
- Your loan repayment may be capped at 10 to 15 percent of your discretionary income, depending on the plan.
- Compared to the standard plan, borrowers may pay more in interest over the life of the loan – but it’s a far better option than default.
- Go to StudentAid.Gov for more information.
2. Postponing Payments
- Deferment. If you have a subsidized Stafford Loan or Perkins loan, the government may pay the interest on the loan while the loan is in deferral based on economic hardship.
- Forbearance. This program allows you to temporarily postpone payments. A forbearance is granted for up to 12 months at a time up to a total of 3 years. The qualifications aren’t stringent, however the interest will continue to accrue even on subsidized loans.
Forbearance for 1 year will increase the interest over the life of your loan by 25%.
Forbearance for 3 years will increase the interest over the life by more than 80%!
Many students aren’t sure what to do. The key is talking to your lender. They can help you understand the options you have to avoid a default or be delinquent.
Date Posted: 06/06/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 28 states, and we’d love to help.