Most students who fall behind in their loan payments don’t do it intentionally. But falling short of meeting your repayment commitment could lead to default—and that’s the last thing you want. A little crisis control at the first sign of trouble will put you back on the right track.
If you have trouble making the payments on your education loans, contact your loan servicer immediately. You may qualify for a deferment, forbearance, change in repayment schedule, or other repayment options that can ease the financial burden on you and make repayment a little easier—especially when you’re just starting out on your own.
Following are some of the repayment programs your servicer may offer to help you avoid default:
• Payment Due Date Change
Adjusting the date your payment is due is an option if you have several loans to keep track of, have many bills due on the same day, or get paid at times that don’t coincide with your loan-payment dates.
How it works: Contact your servicer to see if you can change the date your loan payment is due to help you keep your loan and bill payments in synch.
• Automatic Payment
Here’s a handy way to repay your student loans and build a good credit rating.
How it works: When you enroll in an automatic payment program, you authorize a transfer of money from your checking or savings account to your lender or loan servicer for your monthly student loan payment. Your loan payment is made automatically each month, so you don’t have to worry about writing and mailing checks or missing a payment.
• Change of Repayment Plan
Your servicer offers a variety of different repayment plans to meet your specific needs. You can choose from a standard plan in which your loans are divided evenly over your repayment term; a graduated plan, which means that you start out with small monthly payments and then pay larger amounts later; an income-sensitive plan, which allows you to specify a certain percentage of your income for your loan payment; or an extended plan, which increases the amount of time you have to repay the loans, thereby decreasing your payment amount. Your servicer may also offer additional options.
How it works: Check out your servicer’s Web site or call their customer service number to figure out which repayment option will work best for you. You can also compare how the different plans will affect your payment amount at www.finaid.org/calculators.
• Loan Deferment
If you cannot afford to make the monthly payment on your Federal Stafford, Perkins, or PLUS Loans, you may be eligible for a deferment. This option lets you postpone making monthly payments on the principal (the amount you borrowed) and sometimes the interest, too. You qualify for a deferment if you are attending a postsecondary school at least half time, unable to find full-time employment (up to three years), studying in an approved graduate fellowship or rehabilitation training program for the disabled, or experiencing economic hardship (up to three years).
How it works: Your servicer will tell you if you are eligible for a deferment and how long you may postpone repaying your loan. During the deferment period, the federal government pays the interest due on Federal Subsidized Stafford and Perkins Loans. Federal PLUS and Unsubsidized Stafford borrowers may make interest payments during the deferment period or capitalize the interest—add it to the amount outstanding on the loan—when the loan goes into repayment.
For more information on deferment, visit www.studentaid.ed.gov or contact your servicer. To apply for deferment, you will need to obtain a deferment form from your servicer and submit it with supporting documentation. You must continue to make loan payments until you receive notification that your deferment has been approved.
• Federal Loan Consolidation
If you’re having trouble managing more than one federal education loan, you may be able to combine all your loans into a single debt, extend the length of the loan to as much as 30 years, and reduce your monthly payments. Married couples may also consolidate their loans into one debt and one monthly payment.
How it works: To qualify for loan consolidation, you must have loans eligible for consolidation and be in the grace period or in repayment for each loan to be consolidated. The interest rate is fixed and based on a weighted average of the rates on the loans being consolidated, rounded up to the nearest 1/8 of 1 percent, not to exceed 8.25 percent. Note that by extending repayment from your original term of 10 years to a new term of 12–30 years, the total amount you pay in interest can be much greater than with a traditional repayment plan. Also, if you consolidate your loans during your grace period, your new consolidation loan will go into repayment within 60 days, so you may lose part of your grace period. You may also consolidate your loans while still in school if you are attending at least half time and have at least $10,000 in loans. If you do so, you will forfeit the in-school subsidy on the loan interest and you will lose the six-month grace period you would have had before the loans go into repayment. The loans will officially be in repayment status, even though repayment will be deferred while you are in school. For more information, visit www.loanconsolidation.ed.gov.
• Loan Forbearance
If you are willing but not financially able to make your monthly payments on your federal loans, or have other extenuating circumstances, and do not qualify for a deferment, you may be allowed to postpone making payments—or make lower payments—for a short time.
How it works: Your lender will tell you if you are eligible for a forbearance and how long you may postpone repaying your loan. However, unlike a loan deferment, you must pay the monthly interest due on your loan during the forbearance period, or you may opt to capitalize the interest and have it added to the amount outstanding on the loan when you begin making payments again.
For more information on forbearance, visit www.studentaid.ed.gov or contact your servicer. To apply for forbearance, you will need to obtain a forbearance form from your servicer and submit it with supporting documentation. You must continue to make loan payments until you receive notification that your forbearance has been approved.
Those are just some methods to keep you atop your financial responsibilities. Remember to always keep a close eye on these things. This is the gateway to the rest of your financial life, and though finance may not be the most important topic on your mind - remember that credit scores can be affected by neglect on the student loans. Unfortunately credit scores are the numbers that will keep your interest rates low and your options more open when you are seeking future car or home loans. I’ve never been a fan of taking out a loan, but the loanless cash-life is an entirely different story for an entirely different day. More on that in the future.