Many college students look forward to the day they have dreamed of since the first day of classes, graduation. Some will go on to pursue a higher degree of education, some will look for career opportunities, and some will advance at the position they currently hold. For those who are pursuing a higher degree, student loans are deferred until their next graduation day. For the rest of the graduates, once the excitement of the big day subsides, they will be faced with the challenges of paying back loans they’ve accrued during their time in school. This can be a very overwhelming time. Student loan debt starts weighing on their minds. In some cases, students have had to borrow private loans as well to cover expenses during their college years.
What am I to do with all of this debt? Where do I begin? What if I can’t afford the payments or haven’t found a job yet? These are a few of the many questions a new graduate may have.
There are a variety of options out there to help graduates deal with their new financial dilemma. Graduates have a 6 month deferment period after graduation. This means their loans will not become actively “due” to pay until 6 months after their classes have ended. This gives a student the opportunity to find a job and begin to make plans for their financial future.
So, once the 6 month deferment has come to an end and a graduate has not located a job or cannot afford their scheduled loan payment amounts. What then?
Places that can help with your student loans
The Department of Education offers an Income-Based Repayment. These payments are based on your income and family size. All Stafford, PLUS, and Consolidation Loans made under the Direct Loan or FFEL Program are eligible . If these loans are in a default status, they are NOT eligible for this program. So the key is to be proactive and not put off dealing with them. Loans that were made to parents as borrowers for education expenses are also NOT eligible for this repayment option.
A graduate is eligible under the Income-Based Plan if they meet certain requirements. If one’s student loan debt is high in comparison to their income and family size, an IBR plan could be right for them. The Department of Education has an IBR calculator to estimate whether you could qualify for the IBR plan.
What are the benefits?
- Pay as you earn. An IBR plan calculates your monthly payment as less than the amount you would pay under a 10yr standard repayment plan. Although lower monthly payments may help a borrower on a short term basis; it also results in a longer repayment period and added interest.
- Interest Payment Benefit: If an IBR payment does not cover the added interest on your loans each month, the government will pay your unpaid interest on your Subsidized Stafford Loans for up to 3 yrs from the date your repayment begins.
- 25 Year Cancellation: If you repay under the IBR plan for 25 yrs and meet certain requirements, any remaining balance can be cancelled completely.
- Public Service Loan Forgiveness (10 year plan): If you work in public service, make 120 qualifying payments on time, you can qualify for loan forgiveness through the Public Service Loan Forgiveness Program. “Forgiveness” in simpler terms means, written off.
- For more information, visit: http://www.studentaid.ed.gov/resources, or contact a licensed professional who can guide you through the process and help find the best solution to fit your needs.
Under the IBR program, you must also realize, you are paying more in interest and must also submit annual documentation such as tax returns to verify income and family size. An example of a married couple, both incomes are included in the calculations. If both parties have student loans, this is also considered when calculating monthly payments.
As always, when dealing with or adding another monthly payment to your list, active budgeting is key to making ends meet. Stay proactive and don’t put off dealing with student loan debt. Taking the necessary steps to manage this added expense can save you time, money, and stress in the long run.
For more information, visit the Department of Education website: http://www.ed.gov/.
“If opportunity doesn’t knock, build a door”. ~ Milton Berle
** Information based on information from The Department of Education and the Federal Student Aid Administration, courtesy of student.aid.ed.gov.