If you are struggling with a significant amount of student loan debt, you are not alone. There are resources to help you manage both federal and private student loans. In this article, we will explore some options available for repaying federal student loans and how to manage your private student loans.
Options for Repaying Federal Student Loans
If you have a lot of student loan debt, you should carefully consider all available options. There are multiple ways to reduce your debt burden or monthly payments, but you should be aware that some of these options may increase the total interest costs over the life of the loan.
Loan Consolidation
You can consolidate most existing federal loans through a Direct Consolidation Loan, which combines all of your loans into one monthly payment. Consolidation can lower your payment by allowing you to extend the repayment period up to 30 years (which may increase overall interest costs). If you have non-direct loans, consolidation can make your loans eligible for income-driven repayment plans that are often unavailable.
Income-Driven Repayment
Income-driven repayment plans set loan payments at a percentage of your income – typically between 10% and 20% of your discretionary income, depending on the plan. Repayment periods last 20 or 25 years, and any remaining balance is forgiven at the end of the period. Compare plans carefully to determine which one is best for you. Loans that are in default are not eligible for income-driven repayment.
Deferment or Forbearance
Both deferment and forbearance allow you to temporarily stop payments. You must request a deferment or forbearance from your loan servicer and meet eligibility requirements for one. Financial hardship and participation in certain programs (like the military or AmeriCorps or graduate fellowship) and cancer treatment are conditions that are usually eligible. If you have certain types of loans, like subsidized direct loans, you won’t be responsible for paying the interest that accrues during the deferment. However, on most federal loans, the interest that accrues will be added to your balance once the deferment period ends. You are responsible for paying interest on any loans during forbearance.
Federal Student Loan Deferment During COVID-19 Pandemic
Initially, COVID-19 relief legislation paused payments until September 30, 2020, by placing federal loans in administrative forbearance. It also set the interest rate on federal student loans at 0%. This relief has been extended until 60 days after the resolution of court cases challenging Biden’s student loan forgiveness program or until the Department of Education is allowed to proceed with the program. If legal issues are not resolved by June 30, 2023, payments will resume two months after that.
How to Manage Private Student Loans
If you have private student loans, federal COVID-19 relief efforts do not reduce your interest rate or provide you with the right to temporarily pause payments. If you have a lot of student loan debt and want help repaying, ask your private loan providers about what assistance they offer.
Temporary Forbearance, Deferment, and Payment Assistance
Private student loan providers may offer temporary forbearance, although it is important to ask your lender how interest is handled and whether there are fees associated with pausing payments. Lenders typically offer deferment options during school enrollment and other deferment options (such as for active military service or public service or residency deferment). Some private student loan providers may also offer payment assistance options. Refinancing Student Loans: You may be able to refinance private student loans at a lower interest rate, a lower monthly payment, or both. Refinancing involves securing a new loan with a private lender and using it to pay off your existing student loans. You usually need good credit to qualify.
Budgeting
For Student Loans
Budgeting may seem like a simple and unexciting task, but the simple act of reviewing your expenses and finding those you can cut back on or eliminate can significantly impact your financial well-being. Review your bank and credit card statements to find items you can reduce, and remember that the sacrifices you make now don’t have to be permanent. Cutting back on some expenses is a good practice and can enable you to achieve other goals beyond student loan repayment, such as saving for a down payment on a home or for graduate studies.
Financial Counseling
When facing significant student loan debt or any type of debt issues, consider reaching out to a credit counselor. Credit counselors are professionals who can assess your entire financial situation and help you create a budget and a workable plan. They may be available through credit unions, religious organizations, and non-profit associations. Only use a certified counseling service. Certified organizations include the National Foundation for Credit Counseling and the Financial Planning Association – either can help you get the assistance you need.
These are some steps that can be taken to manage overwhelming student loan debt. Remember that it’s important to start planning and taking the appropriate actions to gain control of your debt and achieve financial stability.
Source: https://www.thebalancemoney.com/help-my-student-loans-are-overwhelming-me-2385997
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