Student loan defaults are at their highest rate in over a decade and are likely to head higher.
At the center of this "perfect storm" are high unemployment, lower-paying jobs and cutbacks in states' programs that had offered loan forgiveness.
And while federal student loans offer some payment relief and modification options, private loans offer fewer options and require repayment immediately.
Most students (65.7 percent) turn to loans to pay for some or all of their college costs. Studies report that undergraduate seniors at four-year institutions carry loans averaging about $22,500 for the four years.
One last-ditch option available for many other forms of debt -- discharge relief through bankruptcy - is not easily available for student loans. Folks at the end of their financial rope who have student loans must claim an "undue hardship" to seek bankruptcy protection from those loans. According to reports, there is a 50 percent chance of such a claim succeeding.
There is no statute of limitations for collection of student loan debt, and lenders have very strong powers to collect on defaulted student loans. For instance, lenders can garnish up to 15 percent of your take-home pay, seize your federal and state tax refunds and prevent renewal of professional licenses. For these reasons, paying back student loan debt is a financial priority.
There are also financial incentives for paying back student loans: You can deduct up to $2,500 in student loan interest even if you do not itemize deductions on your income tax return.
Folks having difficulty paying their student loans should not simply give up. Student loans offer more flexibility, delay and repayment options than any other debt and credit obligations. For example, folks with student loans can apply for deferment or forbearance (in which loan payments can be temporarily suspended due to hardship situations, such as unemployment). There are steps individuals can take to make the process of student loan repayment more manageable:
Talk to Your Lender: If you are struggling to repay your loans, speak to your lender before you stop making payments. If you default before contacting your lender, you may become ineligible for deferments or forbearance. Just ignoring the problem will make it worse, as interest will continue to accrue.
Consider Deferments or Forbearance: Lenders may offer deferments (for up to three years for federal loans and one year for private loans) or forbearance. For example, while in deferment, the interest on subsidized federal loans does not have to be repaid, but continues to accrue for unsubsidized loans. Under forbearance, you may be permitted to reduce or stop making payments for a set period of time, but the interest continues to accrue. These options should only be used for short periods.
Consider Income-Based Repayment: A new option, available July 1, 2009 for federal loans is the income-based repayment plan. Under this option, your payment is capped at 15 percent of discretionary income (defined as your income that exceeds 150 percent of the poverty line). Under this option, any loan balance that remains after 25 years of payments is forgiven. This option may be available even if you have already defaulted on your loans. This option may be suitable for borrowers with high debt, low incomes and very little possibility of ever getting a higher-paying job.
Consolidation Loan: One way to make your student loan payments more manageable is to consider a transaction called "loan consolidation," in which individuals with qualifying student loans can combine all their loans from various lenders into one single loan with a single lender. One of the main benefits of "student loan consolidation" is a smaller monthly payment, which is typically the result of stretching out payments over a longer period of time and receiving discounts provided by lenders competing for your loan.
Source
Wednesday, October 28, 2009
Thursday, October 15, 2009
Repaying Student Loans In Tough Times
As the recession drags on, folks with student loans are being hit especially hard.
Student loan defaults are at their highest rate in over a decade and are likely to head higher.
At the center of this “perfect storm” are high unemployment, lower-paying jobs and cutbacks in states' programs that had offered loan forgiveness.
And while federal student loans offer some payment relief and modification options, private loans offer fewer options and require repayment immediately.
Most students (65.7 percent) turn to loans to pay for some or all of their college costs. Studies report that undergraduate seniors at four-year institutions carry loans averaging about $22,500 for the four years.
One last-ditch option available for many other forms of debt -- discharge relief through bankruptcy - is not easily available for student loans. Folks at the end of their financial rope who have student loans must claim an “undue hardship” to seek bankruptcy protection from those loans. According to reports, there is a 50 percent chance of such a claim succeeding.
There is no statute of limitations for collection of student loan debt, and lenders have very strong powers to collect on defaulted student loans. For instance, lenders can garnish up to 15 percent of your take-home pay, seize your federal and state tax refunds and prevent renewal of professional licenses. For these reasons, paying back student loan debt is a financial priority.
There are also financial incentives for paying back student loans: You can deduct up to $2,500 in student loan interest even if you do not itemize deductions on your income tax return.
Folks having difficulty paying their student loans should not simply give up. Student loans offer more flexibility, delay and repayment options than any other debt and credit obligations. For example, folks with student loans can apply for deferment or forbearance (in which loan payments can be temporarily suspended due to hardship situations, such as unemployment). There are steps individuals can take to make the process of student loan repayment more manageable:
Talk to Your Lender: If you are struggling to repay your loans, speak to your lender before you stop making payments. If you default before contacting your lender, you may become ineligible for deferments or forbearance. Just ignoring the problem will make it worse, as interest will continue to accrue.
Consider Deferments or Forbearance: Lenders may offer deferments (for up to three years for federal loans and one year for private loans) or forbearance. For example, while in deferment, the interest on subsidized federal loans does not have to be repaid, but continues to accrue for unsubsidized loans. Under forbearance, you may be permitted to reduce or stop making payments for a set period of time, but the interest continues to accrue. These options should only be used for short periods.
Consider Income-Based Repayment: A new option, available July 1, 2009 for federal loans is the income-based repayment plan. Under this option, your payment is capped at 15 percent of discretionary income (defined as your income that exceeds 150 percent of the poverty line). Under this option, any loan balance that remains after 25 years of payments is forgiven. This option may be available even if you have already defaulted on your loans. This option may be suitable for borrowers with high debt, low incomes and very little possibility of ever getting a higher-paying job.
Consolidation Loan: One way to make your student loan payments more manageable is to consider a transaction called “loan consolidation,” in which individuals with qualifying student loans can combine all their loans from various lenders into one single loan with a single lender. One of the main benefits of “student loan consolidation” is a smaller monthly payment, which is typically the result of stretching out payments over a longer period of time and receiving discounts provided by lenders competing for your loan.
Source
Student loan defaults are at their highest rate in over a decade and are likely to head higher.
At the center of this “perfect storm” are high unemployment, lower-paying jobs and cutbacks in states' programs that had offered loan forgiveness.
And while federal student loans offer some payment relief and modification options, private loans offer fewer options and require repayment immediately.
Most students (65.7 percent) turn to loans to pay for some or all of their college costs. Studies report that undergraduate seniors at four-year institutions carry loans averaging about $22,500 for the four years.
One last-ditch option available for many other forms of debt -- discharge relief through bankruptcy - is not easily available for student loans. Folks at the end of their financial rope who have student loans must claim an “undue hardship” to seek bankruptcy protection from those loans. According to reports, there is a 50 percent chance of such a claim succeeding.
There is no statute of limitations for collection of student loan debt, and lenders have very strong powers to collect on defaulted student loans. For instance, lenders can garnish up to 15 percent of your take-home pay, seize your federal and state tax refunds and prevent renewal of professional licenses. For these reasons, paying back student loan debt is a financial priority.
There are also financial incentives for paying back student loans: You can deduct up to $2,500 in student loan interest even if you do not itemize deductions on your income tax return.
Folks having difficulty paying their student loans should not simply give up. Student loans offer more flexibility, delay and repayment options than any other debt and credit obligations. For example, folks with student loans can apply for deferment or forbearance (in which loan payments can be temporarily suspended due to hardship situations, such as unemployment). There are steps individuals can take to make the process of student loan repayment more manageable:
Talk to Your Lender: If you are struggling to repay your loans, speak to your lender before you stop making payments. If you default before contacting your lender, you may become ineligible for deferments or forbearance. Just ignoring the problem will make it worse, as interest will continue to accrue.
Consider Deferments or Forbearance: Lenders may offer deferments (for up to three years for federal loans and one year for private loans) or forbearance. For example, while in deferment, the interest on subsidized federal loans does not have to be repaid, but continues to accrue for unsubsidized loans. Under forbearance, you may be permitted to reduce or stop making payments for a set period of time, but the interest continues to accrue. These options should only be used for short periods.
Consider Income-Based Repayment: A new option, available July 1, 2009 for federal loans is the income-based repayment plan. Under this option, your payment is capped at 15 percent of discretionary income (defined as your income that exceeds 150 percent of the poverty line). Under this option, any loan balance that remains after 25 years of payments is forgiven. This option may be available even if you have already defaulted on your loans. This option may be suitable for borrowers with high debt, low incomes and very little possibility of ever getting a higher-paying job.
Consolidation Loan: One way to make your student loan payments more manageable is to consider a transaction called “loan consolidation,” in which individuals with qualifying student loans can combine all their loans from various lenders into one single loan with a single lender. One of the main benefits of “student loan consolidation” is a smaller monthly payment, which is typically the result of stretching out payments over a longer period of time and receiving discounts provided by lenders competing for your loan.
Source
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