Today, approximately 70% of college graduates leave institutions of higher learning with significant amounts of student loan debts; over 44 million Americans collectively owe almost $1.5 trillion – that averages out to 1 in 4 American adults with student loan debts, with each having over $35,000 to pay off. With these record rates of exorbitant student loan debts, it is no surprise that many professionals – especially the younger, less experienced ones – are having a tough time keeping up with the payment plans to which they previously agreed.
When someone is struggling terribly to pay off their staggering student debts, they have a few logical courses of action to ease, if temporarily, this financial stress. The most common, and perhaps most treacherous, is called forbearance. This arrangement is quick and easy to set up, often requiring only one phone call to alter the status of your student loans to this state. But beware: while opting for a period forbearance will halt the barrage of monthly student loan payments for up to a year, these loans keep accruing interest at the regular rates. After the forbearance period ends, those compiled interest charges can hike monthly payments – making it more difficult than before to pay monthly student loan bills, especially if your overall financial situation has not improved during the forbearance period.
Another payment option, which has most of the benefits of forbearance, but less of its pitfalls, is deferment. Unsurprisingly, deferment is more difficult to set up than forbearance; you have to apply and qualify for this status, and eligibility is dependent on filing the necessary paperwork with a loan officer and reasonable need, including unemployment or continued enrollment in school at least half time. During a period of deferment (which is also more variable in duration than forbearance) subsidized federal student loans and Perkins loans do not accrue interest. Furthermore, if qualified for deferment, you retain the option to opt for forbearance at a later date if the need for further financial relief arises later.
An additional payment plan is the income-based Revised-Pay-As-You-Earn plan (REPAYE), which does not have any income requirements and can be accessed by those with very low or no income. In this plan, eligible borrowers will generally pay bills equaling ten-percent of their discretionary income (with a required recertification of income and family size every year), and, after twenty or twenty-five years of payments, the remaining student loan balance is forgiven. If – due to low income or abnormally high amounts of student loan debts – borrowers’ payments are not large enough to cover their interest costs, all or part of the interest accrued in this payment period will be paid for by the government.
Before defaulting on student loans, consider taking advantage of one or all of these repayment options.