Like most college students, you probably have student loans that you’re struggling to pay off. But the problem with student loans isn’t just the fact that they can be hard to manage; there are actually some misconceptions about them as well, and if you aren’t aware of these misconceptions, you may be making it harder on yourself than you need to when paying back your loan.
To help you get a better understanding of your loans and how to deal with them, read through this article about everything you need to know about student loans.
How do student loans work?
If you do not repay the loan in full, the government may take your tax refund, garnish wages, seize federal benefits such as Social Security or even offset a federal student loan debt against other kinds of debts you owe.
There are two types of federal student loans: subsidized and unsubsidized. A subsidized loan has a lower interest rate and the government pays the interest while you’re in school.
While a unsubsidized loan has a higher interest rate, but no one is paying it while you’re enrolled. When you graduate and start making payments, the interest will accumulate on top of what’s already owed.
In addition to federal loans there are also private student loans which have varying terms depending on where you get them from.
Finally, if your parents co-sign for your college education by taking out a private or PLUS loan on behalf of their child, they’ll still have to pay back those funds themselves whether their child graduates college or not.
How To really pay them off?
Although it may seem impossible, it is possible to pay off student loans without going into debt. The first step is figuring out how much you owe and what your interest rate is.
From there, calculate the monthly payment and figure out how long it would take you to pay off the loan. You can also use a loan calculator to find out the best way for you to go about paying off your student loans.
How Does Deferment Help You If You Can’t Afford Your Loan:
There are a few different deferment options available for borrowers who want or need to temporarily stop making payments on their student loans.
For example, you can qualify for deferment if you are enrolled in school at least half-time and are unable to make your payments because of economic hardship.
If you have an Economic Hardship Deferment, you may be eligible for forbearance during the period of time that the deferment is in effect.
Another option is an Unemployment Deferment, which can be granted if the borrower has been looking for full-time employment unsuccessfully during the past six months.
You will only be eligible for this type of deferment after three consecutive months of full-time employment followed by one month of unemployment.
What happens if You Can’t Make Full loan payments?
If you fail to make your loan payments, the lender can bring a lawsuit against you. If they win, they will be able to garnish up to 15% of your wages.
Additionally, if you are sued and lose the case, you will be responsible for paying all the court costs and attorney’s fees that accrued during the suit.
Furthermore, any missed or late payments can negatively impact your credit score.
The good news is there are options available to help you manage repayment of student loans – even if times get tough!
How To Get Started on repayment plans?
The first thing you need to do is make sure that you’re enrolled in the right repayment plan. The three main types of repayment plans are:
Standard, graduated, and extended.
-Standard Repayment Plan: Fixed payments over a set period of time (10 years) with a fixed interest rate.
-Graduated Repayment Plan: Payments start out low and gradually increase every two years for up to 10 years or until you have paid off your loan balance. These options are best if you expect your income will increase steadily over the next few years.
-Extended Repayment Plan: Payments stay level and extend up to 25 years. These options are best if you think it will take a long time before your income rises high enough to afford higher monthly payments because they’ll be lower while they’re low and they won’t jump when they do rise.
How About Consolidating Federal Loans?
Yes, you can consolidate your federal loans. The Federal Direct Consolidation Loan is a loan offered by the U.S. Department of Education that allows you to combine all of your eligible federal student loans into one new loan with a single monthly payment and interest rate.
It’s designed for students who have more than $10,000 in outstanding debt from different federal education loans.
There are no fees for consolidating your federal student loans if you meet certain conditions. First, you must have received a disbursement. Second, only loans made under the William D. Ford Direct Loan Program (Direct Loans) are eligible for consolidation.
Third, you cannot have had any bankruptcies discharged. Fourth, your current repayment plan must be at least 10 years long.
Common ways people manage their debt/repayment:
It’s important to keep in mind that there are many different repayment plans available, some of which can help ease the burden of your student loan debt.
For example, if you have a federal student loan and make less than $20,000 a year, you may qualify for Pay As You Earn (PAYE) or Income-Based Repayment (IBR).
These plans lower your monthly payments and provide more leeway if your financial situation changes. They also forgive any remaining balance after 20 years instead of the typical 10 years on a standard plan.
If you’re concerned about high interest rates on your private loans, ask your lender about their flexible payment options and refinancing opportunities.
They might offer discounts, no prepayment penalties, or other incentives that could save you money long-term.
Common misconceptions surrounding student loan debt:
The first misconception is that all student loan debt is created equal. This couldn’t be farther from the truth. The type of loan you take out, your credit history and the amount you borrow can greatly impact how much you pay back and how long it takes to repay your debt.
There are many different types of loans available for students today. These include: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS loans, Grad PLUS loans and Perkins loans.
The rate at which you repay your loan depends on which kind of loan you have chosen to receive – meaning that if a graduate took out a Perkins Loan they would have less monthly payments than someone who took out a Direct Unsubsidized Loan but will also have less total interest paid off on their original loan.