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Are you constantly getting pestered by your loan company? Can’t find a reliable job post-graduation? Have other fees to pay and simply can’t afford to get out of debt yet? You aren’t alone. More than 20% of student loan borrowers are in default payment mode: meaning, they haven’t made a loan payment in at least 270 days. However, this plan has financial consequences. How to avoid it? Read on.
Even though it is not ideal, sometimes borrowers can't pay off their student loans directly after graduation, or even years later. In 2021, student loan debt has reached an all-time high of $1.7 trillion nationwide. The average American has accumulated an average of $39,000 in student loan debt over the course of a four year undergraduate degree. 3.2 million new federal student loan borrowers and a spike in unemployment fueled the largest increase in the total student loan debt balance since 2013.
Prior to graduation, you’re generally offered financial counselling to familiarize yourself with a few options on how to repay your loan bill. Students are given a six-month grace period after graduation before repayment begins for all loans. On the Department of Education’s website, you can manage your loans, view your balance, find your loan servicer, choose a repayment plan, or even start paying back early. Due to Covid-19, all borrowers no matter what year they graduated were granted emergency relief, including a suspension of loan payments, a 0% interest rate, and stopped collections on defaulted loans.
This relief ends promptly on Jan. 31, 2022. With this in mind, it’s best to prepare ahead of time before your situation gets out of hand. Have no fear, because Grantford is here to help you navigate repayment.
Understanding Your Student Loans
Learning how to navigate is intimidating, especially when you don't know what kind of loans you have taken out. Try to remember back when you started some of the entrance and financial awareness counseling that was offered to you. They should have instructed you on how to finance your repayments, and draw up an estimate of the potential payments. You're usually able to view the repayment options on the Department of Education's website. If you don't know your login, call their help center at 1-800-621-3115 and they should be able to help you navigate getting back into your account.
Students apply for loans through filling out the Free Application for Federal Student Aid (FAFSA). Each aid package should include grants, scholarships, federal or private loans, work study programs, and a potential out of pocket cost based on your family’s income. The difference, however, is that grants and scholarships don't need to be repaid, but loans do, including the accumulated interest.
Here’s our breakdown of the different kinds of loans and what they mean:
Direct Subsidized Federal Loans
The interest accumulated on subsidized loans is repaid by the federal government while you’re still a student in undergraduate or graduate school. This also includes during grace periods, and during any deferment periods. Only after the six month grace period post-grad is when the interest you need to repay starts to accumulate, and it increases until the loan is completely paid off.
Direct Unsubsidized Federal Loans
On unsubsidized loans, you’re responsible for paying for all the interest accumulated directly after taking out the first loan. This includes any interest racked up from while you were still a student. Interest will also continue to build up until the loan is paid in full.
Direct Parent PLUS Loan
A Parent PLUS Loan is still borrowed from the federal government, but the difference is that the individual student is not responsible for paying back the loan -- the parent is. Your credit will be checked and you cannot have an adverse credit history. Interest accumulates similarly to an unsubsidized loan with a 6.28% interest rate.
Private loans can be complicated, and depend on your credit or your co-signers credit. Not everyone is eligible for a private loan, and the interest accumulated on a private loan tends to be much higher than a Federal Loan. Private loans are often made by independently-owned organizations such as banks, credit unions, and other private organizations. The terms and conditions of those loans depend on who you are borrowing from. Popular private loans are from Discover Student Loans and Sallie Mae, for example. Post-grad jobs that offer student loan forgiveness don’t include private loans.
What To Do If You Can’t Make Payments
The harmful outcomes of doing default student loan repayments can be detrimental and sometimes takes years to recover from. Your best course of action is to completely avoid getting into a situation like that at all. This isn't meant to scare anyone, but when you go to default, your collection borrowing rate can increase and your credit score can suffer drastically. Missed payments and lack of income are all reported on to your credit, and it's very difficult to recover from that swiftly. If you're really stumped on what to do and your situation is starting to become stressful, here are some tips on how you can start making plans to get back on track.
Draw Up A Repayment Plan
If you're having trouble on where to start, contacting your loan servicer is the beginning. After you do that you can explain the situation that you're currently in and they can try to arrange an affordable payment schedule for you. even if certain things that might still be out of your price range you might have to do some expense cutting in order to make enough money for payments. Think of no longer getting fast food, brewing your coffee at home, refraining from shopping for clothes often, and to stop purchasing items that are not essential. Although it might suck at first, you’ll thank yourself later.
Score a Job That Offers Student Loan Forgiveness
If possible, try and pursue a new profession or side job that can help offset the cost of your loans somehow, or that offer student loan forgiveness. Whether you decide to be a public service worker or pursue a full-time position with a new job entirely, there are plenty of options in various fields for those who are looking to cut down on some of their student loans that anyone can pursue. Some have strict requirements and also make those who are pursuing the position sign contracts. However, if you’re in a tough spot, it might be one of the only options you have.
Federal agency employees can receive benefits if the agency is having a hard time finding new employees to fill open slots. When this happens, they are allowed to offer student loan repayment assistance if a new employee signs at least a three year contract. Those who might have a knack for teaching can also benefit from student loan forgiveness. For instance, workers who are special education teachers, or who teach in a low-income school district can apply for the federal teacher loan forgiveness program.
Any automotive manufacturer employee with the Specialty Equipment Market Association (SEMA) can apply for the SEMA Loan Forgiveness Program. In order to be eligible, employees are required to work for the company for at least a year with a degree or certificate of completion from a college or technical school.
Certain volunteer organizations such as AmeriCorps, Peace Corps, Volunteers in Service to America (VISTA), and other qualifying organizations offer student loan forbearance that might cut you the debt break that you need. Once you have completed your term of volunteer work, you can apply for student loan awards or other repayment options for direct loans. Similarly, public service workers who work for nonprofits can qualify for student loan forgiveness. Public servants with federal loans can apply for loan forgiveness through the Public Service Loan Forgiveness (PSLF) Program.
If none of the above options work for you, your best bet might be to find a financial advisor of some sort. Most of these professionals have to be paid for with a hefty cost. Alternatively, if you're able to find somebody that you personally know who is really knowledgeable about student loans and offers advice, that might not be a terrible option either. If you're looking for a quick fix though, there really aren't many options, unless you're willing to make some sacrifices. The reality of student loan repayment can sometimes feel harsh, but being able to remain positive about your situation will get you through this tough time.