The use of student debt to cover tuition costs is on the rise. A large portion of students are now managing their education expenses through student loans. According to Educationdata, the number of student borrowers is 47.9 million. But many students do not have a good idea of how to manage student loans.
You need to remember that debt is never a good thing. It does not reduce your costs rather increases them. Even then, many students are forced to take out loans as they have financial hardship. So to get a loan you need to know about student loan management.
How to Manage Student Loan Debt
Share this Image On Your Site
Calculate your total loan
Before taking out a student loan, you should first determine how much you owe overall. You need to borrow according to your financial needs. You can take federal student loans and private student loans if you want.
The interest rate on federal loans is lower and the interest rate on private loans is higher. So you need to calculate how much you can repay the loan. Also calculate whether the loan is sufficient to meet your financial needs.
You should not borrow more than you need, you may fall in trouble repaying the loan in future. Failure to repay the loan on time will affect your credit rating.
Read More – How Does Student Loan Interest Work?
Identify your lender
You need to identify a good lender from which you can borrow money. You need to know where to go to get a loan. The two main sources of student loans are federal loans and private student loans. The interest rate on federal loans is low and the payment schedule is also flexible so you should try for a federal loan first.
If you do not get a federal loan or need more debt, you can apply for a private loan from a bank, credit union, or state.
The interest rate on private loans is much higher and the payment schedule is not as flexible as on federal loans. You need a good credit score to get a loan.
Read More – How to Get a Student Loan?
Know the terms and conditions of student debt
The terms and conditions of each lender are different. The interest rate and repayment term of each organization varies. Someone’s interest rate is lower; someone’s payment period is shorter.
Know the terms and conditions of the loan well at the time of loan agreement. Many borrowers make this mistake. They do not read the terms well which causes problems while making the payment.
Know when your payment begin
Find out from your lender when the loan payment will start. If you know, you can prepare accordingly. You do not have to repay the interest of federal loan while you are in school and for a grace period of up to six months. The government will pay the interest on your loan.
When you take out a private student loan, the payment will start as soon as you get the loan. But many lenders will give you some opportunities. For example – low payments; just pay interest while in school, the choice of deferring payments. You may or may not get these opportunities
But you should make regular payments without waiting for the future. If you do not pay regularly, a lot of interest will be accumulated which may become a burden for you to pay.
Suppose your financial situation is not good. You cannot repay the loan at this time. If you do not repay the loan on time then it will lower your credit score so you should consider forbearance. Forbearance will temporarily save you from payment.
You do not have to make payment till a certain time or you will pay a small amount at this time. But during forbearance, you have to pay the interest on the loan. However, if you accrue interest it will be capitalized.
The interest on the loan will be added to the principal. When the forbearance period is over, you will have to repay a large amount of debt. You should know that unpaid interest is capitalized only on Direct Loans and Federal Family Education Loan (FFEL) Program loans but never on Federal Perkins Loans.
For forbearance you need to apply to loan servicer in a specific form. You will get this benefit if your application is accepted.
There are two main types of forbearance –
- General Forbearance
- Mandatory Forbearance
You can apply for General Forbearance for the reasons mentioned below.
- Financial difficulties
- Medical expenses
- Change in employment
- Also any reason acceptable to the loan servicer
Forbearance duration will not more than 12 months at a time. However, if you have financial problems, you can re-apply for General Forbearance, but the total General Forbearance cannot be more than three years.
You can apply for Mandatory Forbearance. The loan servicer will accept your application if they deem you eligible. The term of Mandatory forbearance will not exceed 12 months at a time. After this duration if you have financial problem, you can apply again.
Read More – Types of Student Loans: Which Is Best for You?
Deferment allows you to postpone your payment for a certain period of time. Although your payment is postponed at this time, you still have to pay interest. If you do not want to pay interest you can allow it to accrue and be capitalized.
The interest on the loan will be added to your principal balance. Like forbearance, unpaid interest is capitalized only on Direct Loans and Federal Family Education Loan (FFEL) Program loans but never on Federal Perkins Loans.
You may receive a deferment on federal student debt if you encounter the following situations.
- experiencing economic hardship
- If you are undergoing treatment for cancer
- If you are a student of an approved graduate fellowship program.
- Enrolled at least half-time in school
- If you are a member of the Army and engaged in combat or national emergency work.
- If you do not have a job
- Enrolled in an approved rehabilitation training program
Consolidation will help you make your payments easier if you use multiple loan services. This will allow you to change the loan servicer and may make different repayment options.
After you graduate, leave school or drop below half-time enrollment, you will be able to consolidate the loan.
You do not have to pay any fees for Federal Debt Consolidation. This will allow you to increase the loan repayment time (up to 30 years) and reduce the amount of monthly payments.
Consolidation allows you to extend the payment period but it will also increase your interest rate.
But with consolidation you can lose some benefits. Interest rates may rise. Principal rebates, loan cancellation facility may be closed.
Federal Student Loan Forgiveness, Cancellation, and Discharge
Loan Forgiveness, Cancellation, and Discharge means you no longer have to pay the entire or part of the loan. Although Loan forgiveness, cancellation, and discharge look similar but they are used differently.
If you do not have to make any more payments after a certain period of time because the payment is more than your job income, it is called Loan Forgiveness or Cancellation. If you don’t have to pay for permanent disability or the school from which you get the loan is closed, it is called Discharge.
Public Service Loan Forgiveness
If you are an employee of a government or non-profit organization, you can avail loan forgiveness under Public Service Loan Forgiveness (PSLF) Program. But for this you have to pay at least 120 monthly payments. The Public Service Loan Forgiveness facility is available only for direct loans.
Teacher Loan Forgiveness
If you are employed as a teacher in a low-income elementary school, secondary school, or educational service agency, you will receive this benefit. But for this you have to serve low-income students for five years. You may qualify for up to $17,500 forgiveness on direct loans or FFEL Program loans.
Repayment Plans with Loan Forgiveness
If the payment is more than your income then you can take Income-driven repayment plans. This will reduce the amount of monthly payments and the chance for the remaining balances to be forgiven later.
These plans include:
Income-Based Repayment (IBR) – If you have taken a loan on or after July 1, 2014, you have to pay 10% of your discretionary income and if you are a new borrower before July 1, 2014, you have to pay 15% of discretionary income. But it must not exceed the 10-year Standard Repayment Plan amount.
Pay As You Earn (PAYE) – You have to pay 10% of your discretionary income. If you can pay successfully for 20 years, you will be eligible for this facility.
Income Contingent Repayment – You have to pay 20% of the discretionary income.
Payment will be adjusted each year based on your total income, family size and outstanding federal loan balance. This facility is available after paying at least 25 years.
Revised Pay as You Earn (RePAYE) – Here also 10% of discretionary income has to be paid. If you are an undergraduate borrower you must pay 20 years and if you are a graduate borrower you must pay 25 years.
Closed School Discharge
You will be eligible for discharge once the school from which you received the loan is closed.
Total and Permanent Disability Discharge
If you are completely disabled then you will be considered for Discharge. You will need to apply with evidence that you are absolutely disabled. If the U.S. Department of Education accept your application, you will receive a Discharge.
Discharge Due to Death
If the borrower dies, the federal direct loan is discharged. This rule also applies to PLUS loans.
Discharge in Bankruptcy
Your federal loan can be discharged after declaring bankruptcy. In order to do so, you need to prove that your financial hardship will cover a large part of the repayment period.
False Certification Discharge
Discharge will be considered if your school forces you to take out a loan with false information about your ability to borrow.
Unpaid Refund Discharge
f you leave a school after receiving a portion of the loan, the school will be responsible for repaying the entire portion of the loan or some portion to the loan servicer. But if the school authorities do not do so then you might be eligible for a discharge of the portion of your loan that the school failed to return.
What If You Can’t Make Your Payments?
If your financial situation is bad, you may miss your repayment schedule. But if you can afford it, you should never miss it. Again, if the financial situation is worse, you should not declare yourself bankrupt.
Because it is not possible to reduce student debt by declaring bankruptcy. For this you have to think of alternatives. Choose the option that will be best for you.
Don’t take any options that will damage your other benefits. For example, if you refinance private student loans in federal loans, you will be deprived of the benefits that you get in federal loans.
So it would be best to discuss this with your lender and find a solution. The lender can give you some extra opportunity to repay the loan according to your situation.
What you can do in case of private student loan –
- You can refinance through new lenders who will give you long-term loans at low interest rates.
- You can contact the lender and ask for deferment.
What you can do about federal debt –
- You can change your current repayment plan to a more affordable plan to repay your loan. Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) will reduce the loan payment according to your income and family size. Even the government can make some contribution to the interest on the loan and forgive the remaining loan after making a payment for a certain period of time.
- You can go through deferment or loan forgiveness programs.
- If these are not possible then refinance through a good private lender.
There is a big advantage to paying off debt regularly. If you repay the loan regularly, your credit score will improve. As a result, this good credit will help you get a loan when you apply for a home or car loan in the future. So try to keep up your payment.
What happens if I don’t pay back my student debt?
If you do not repay the loan or delay the payment, your loan may eventually go into default. If you default on your student loan, your status report will be given to national consumer reporting agencies. This will lower your credit score, which will have an impact on future borrowing.
Legal action will also be taken against you. Your assets may be forfeited usually wages from employment or money in a bank account and withholding of your tax refunds.
How to negotiate student debt settlement?
You can settle student loans when you are unable to repay the loan payment regularly and you have a lump sum to pay off right away. You will not be able to settle the loan if you repay the loan on time. Even if there is some delay in payment, you will not be considered eligible for settlement.
The settlement varies according to the lender. Some want to settle 50% of the loan while others agree to settle the loan up to 90%. However, most lenders are willing to settle a student loan for less than you currently owe.
Reasons for a federal student debt settlement
- With your pay stubs and bills or recent tax returns you have to prove that you are unable to repay the loan.
- If you can’t make the payment on time even after using other payment options (such as income-driven repayment plans, deferment and forbearance).
Reasons for a private student debt settlement
- If you do not make any payment for more than 270 days
- If you are unemployed and your financial situation is very fragile.
Missing a payment for any reason will lower your credit score which will make it difficult for you to get a new loan. So if you can’t pay, you should use other payment plans.
You will need to contact the lender for a loan settlement. You have to apply for settlement showing suitable reasons.
The private lender may want to give you this benefit after paying a large portion of the loan (70%-80%). And in the case of federal debt, you will have some options. Such as –
- Pay the remaining balance without any fee.
- To pay principal and half interest
- Paying 90 percent of the remaining balance.
I hope you understand how to manage student loans. Now I will say something about the summary of the article.
Check your financial status first before taking out a student debt. Think about whether you need a loan. Think carefully about the amount of loan you can repay.
Then choose whether to take a federal student loan or a private student debt. Know all the loan terms and conditions. Find out when payment will start so you can prepare accordingly. If you have problems repaying the loan, take advantage of payment plans like Forbearance, Deferment, Consolidation, Loan Forgiveness, Cancellation, and Discharge.