The phone rings.
Your stomach clenches.
Your paycheck won’t stretch to cover everything.
You let it go to voicemail.
Who’d thought you’d be dodging creditors two years after graduation? Your student loan payments are killing you.
How did things go so wrong?
It started innocently. It started with an investment in your education. Somehow your investment added up to $31,000 in subsidized and unsubsidized student loans.
Not enough money
For six months after graduation you had no payments. Then reality hits. You’ve got to start making payments on your pesky students loans. But your job doesn’t pay you well.
What are your options?
If you are not working, returning to school or are facing economic hardship, you can get a deferment. A deferment is when you ask to postpone making payments on your student loans. The advantage of a deferment is that it doesn’t affect your credit or your accrued interest on your subsidized student loans. You can get a deferment on your Perkins, Direct Subsidized or Subsidized Federal Stafford loans.
If a deferment is not right for you because you are working, you could also ask for a forbearance. A forbearance lets you temporarily not make your payments, but interest continues to grow on both your unsubsidized and subsidized loans. And if you don’t pay the interest while you’re in forbearance, the interest is added to your principal balance.
What else can you do?
If you need a longer term solution, you should look at income based repayment plans. These plans allow you keep your payments affordable by tying them to your income. To learn about these types of plans, visit StudentAid.gov/IDR.
Is there a downside?
With forbearances and income based repayment plans, you will end up paying more interest over time. You can also ended up paying on your student loan for a longer period of time.
Can anything else help?
A final option that may help, is to consolidate your student loans. With consolidation, your relief comes from making one payment on all of your student loans. It’s important to keep in mind, you may not save any money with loan consolidation.
In summary, you have quite a few options if you are having difficultly repaying your student loans. You can defer them for a set period of time. You can put them into forbearance or take advantage of one of the income based repayment plans to give you some breathing room. And finally, you can consolidate your loans to make managing your student loans easier.
So, next time the phone rings – pick it up. Now that you know your options, discuss with your student loan servicer the plan that will put you back on track.
For more information on income based repayment plans, read: There’s a way to dramatically lower student debt payments, but hardly anyone use it.