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Jul
27

Student Loans 101: What if you can’t afford your student loan payment?

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If you’ve just graduated from school, you may not have that perfect job just yet. So money might be a bit tight when your grace period ends. Don’t panic. Here are some options from the U.S. Department of Education.

Switch repayment plans

There are payment plans that can lower your monthly student loan payment. You’re automatically enrolled in the 10-year Standard Repayment Plan. You can, however, change your plan at any time. If you need to lower your payment, you have a choice of three income-driven repayment plans:

  • • Pay As You Earn
  • • Income-Based
  • • Income-Contingent

There are quite a few benefits to all these plans. Your payment will be a percentage of your income or some other small amount. How much you pay per month will depend on the plan and age of the loan, but it should be something you can afford. Depending on your income, it could be as low as $0 per month. At the end of the repayment period (that’s 20 to 25 years), any remaining balance is forgiven if the student loans are not fully repaid.

There are costs, though. Because the loans will take longer to pay off, you will pay more interest on the loans. Plus, there can be tax consequences to any loan forgiveness.

Postpone payments

Under certain circumstances, you can get a deferment or forbearance. You don’t have to make payments and with some types of federal loans, the government may pay the interest.

Deferments and forbearance are best for short-term delays. They aren’t good for a long-term problem. Interest will be charged on unsubsidized and PLUS loans on deferments. With forbearance, interest will be charged on all loans. The interest can be added to the principle balance and you’ll have to pay a larger total amount. For times longer than a year, income-driven payments are a better choice.

Consolidate loans

Loan consolidation can help. Instead of multiple student loans, you just pay back a single loan. Payments can be lower by spreading the payments out longer. If you have FFEL or Direct Plus Loans, you can consolidate into a Direct Consolidation Loan that will let you qualify for repayment plans such as Pay As You Earn and Income-Based. Your interest rate would be fixed which is good since interest rates are at historic lows right now.

However, if you spread the payments out, just like with different repayment plans, you’ll pay more interest over the life of the loan. Also, you can lose some benefits such as interest rate discounts and loan cancellation that could have been offered with the original loans. At iontuition, we recommend consolidation only when other options aren’t available.

For information about the beneficial student loan management tools from iontution.com, we invite you to watch this short overview. Check out ionManage. Like what you see? Sign up for your account here!


Tom Wray

Tom Wray is all about the research, getting it right, and making it relevant. He’s got solid journalistic experience in all forms of content delivery – and he’s got his keyboard humming with what’s up and important for students, college admins, parents, employers and news junkies. Check out his weekly columns: Student Loans 101, News Flash!, Eye On School Success, Eye On Student Success and more.

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