Consider These Options If You Can’t Afford Your Student Loan
A good life has always been associated with a good education. However, for many Americans, going to a good university and making it all the way through college is not your typical walk in the park. Because of the soaring school fees these days, students are forced to take on part-time jobs and apply for student loans. What is worse is that many of these students have come to a point that they cannot even afford to pay for a student loan.
Students would typically look for a student loan in order to pursue their college education. However, some students are having a hard time finding one. While some are having a hard time finding financing, others are outright rejected because of bad credit, and some are accepted for bad credit student loans.
If you are a student looking for student loans with poor credit, you may really have a hard time. But then again, there just might be some options you can consider in order to pay for a student loan you can’t afford. Read along and learn the top things you can consider doing if you can’t afford your student loan.
Option Number 1: Deferment
If you can’t pay for your student loan, apply for a deferment. What this basically means is that you will ask your lender to defer payment of your loan for a certain period of time. When your loan is deferred, you don’t have to pay for it for a while. What’s more is that you may not have to pay for interest if you have certain types of subsidized loans. Otherwise, interest rates will apply. If you do not pay for the interest while your loan is deferred, this will be referred to as “capitalized” which means that it will be added to your loan balance and that interest will also be charged interest.
It is advisable that you pay for the interest fees at least while the loan is deferred in order to avoid paying more later. It is also important to take note that you should continue making payments to avoid default if you want a deferment.
Option Number 2: Forbearance
Forbearance is similar to a deferment except that forbearance is for students who were not approved to have their loans deferred. Once you are in forbearance you may stop making payments or can just reduce your monthly payments for up to a whole year. However, interest rates will still be applied if you have an unsubsidized loan which will be capitalized if you don’t pay.
Basically, there are two types of forbearances. One is called discretionary while the other is called mandatory forbearance. In a discretionary forbearance, your lender will be the one to decide whether you are granted with forbearance or not. On the other hand, in a mandatory forbearance, the lender is required to grant you forbearance if and only if you meet the criteria to qualify for it.
Option Number 3: Income-Based Repayment (IBR)
You can also pay your loan depending on how much you are earning as long as you qualify for IBR. If you qualify, then the highest amount of monthly payments you will pay will be around 15% of your discretionary income. If you don’t have a job, then your payments can be as low as zero. IBR also pardons your balance after a maximum of 25 years. Of course, this is dependent on the type of program and whether or not you work in public service.
If you are under a subsidized loan, then one of the advantages of the IBR is that the government will pay for the interest that will incur for as long as three years. On the other hand, the interest rates accrue the same as with asking for a deferment or forbearance.
Option Number 4: Income-Contingent Repayment (ICR)
If you choose this option and you qualify, your monthly payments will depend on your income as well as on the size of your family and the amount of money that you borrowed. The remaining balance will then be forgiven after a period of 25 years. If you apply for public service loan forgiveness, the remaining balance will be forgiven after only 10 years. On the other hand, it is also possible that you will pay taxes for the forgiven amount.
ICR also has a ten percent capitalization benefit. What this means is that the amount of interest that is acquired on your loan is capitalized or added to your principal balance if it is found to be less than your computed payment. This happens once annually to such a point that your current loan balance is 10 percent higher than your original balance when you applied for repayment. Afterwards, the interest will no longer be capitalized but will still accrue.
If you are having some difficulties in finding ways to pay for your student loan, look for these options. Depending on your financial condition, not all of these options can work out for you. That is why it is important to weigh the factors first before deciding which option you will go for. The federal government does have a student loan website with counselor’s to help guide students that could be a great help.
What are your student loan experiences? Do you think it is better to go for long term strategies such as deferment or forbearance, or do you prefer going for ICR or IBR? Share your thoughts by entering your comments below and discuss with friends!