If one of your children is about to graduate from college, the chances are that he or she will owe something around $30,000 in student loan debt – or at least that’s the average amount of debt that people graduating college will have this year. To make matters even worse, the job market for many of these newly minted graduates may be bleak. You could expect to find a job fairly easily if you have a major in one of the STEMs or science, technology, engineering or mathematics. However if you don’t, it might be months or even years before you find a job in your field of study.
It just got even worse
If you have a kid in college, it’s just gotten worse. Our Congress was unable to reach a decision regarding interest rates on student loans so the rates just doubled from 3.4% to 6.8%. However, this does not apply to all student loans just federal student aid, including both subsidized and unsubsidized loans. If you or your child was able to obtain a loan from a private entity, this would not apply to you and your interest rate will remain the same.
What if you owe $30,000 or more?
If you graduated from college and are struggling to make your student loan payments, you do have some options. For example, you could get a deferment, which would allow you to temporarily postpone your payments. The way this works is that during your period of deferment, you would be required to make no payments and the federal government might even make your interest payments if you have a Federal Perkins loan, a direct subsidized loan or a subsidized Federal Stafford loan.
Who would qualify?
There are a number of ways you could qualify for a deferment. For example, you would be eligible if you’re in grad school or a career school, if you are unable to find full-time employment or are unemployed, if you are experiencing economic hardship (such as being in the Peace Corps) or in the military. Note: You can learn more about getting a deferment on the Federal Student Aid website.
How to get a deferment
Most deferments are not automatic Meaning that you would need to submit a request to the company that services your loan. In the event that you are in school at least half time, you will need to contact your school’s office of financial aid in addition to whatever company services your loan.
Another way to get control of your student loan debt is by getting what’s called a forbearance. This is designed for people who don’t qualify for a deferment. It would allow you to stop making payments on your student loan or have them reduced for a year. However, interest will continue to accumulate on both your unsubsidized and subsidized loans as well as your PLUS loan.
The two types of forbearnce
There are two types of forbearances – mandatory and discretionary. The discretionary type is one that’s granted at the discretion of your lender. A mandatory forbearance can be requested if you are in a dental or medical internship, are in a residency program, are in a national service program, doing a teaching service or are a member of a National Guard unit that has been activated by your governor. Plus, you may be able to get a mandatory forbearance if your student loan payments each month total 20% or more of your gross income.
Two options for handling the interest
You have two choices in terms of the interest on your loans during forbearance. You could pay the interest or you could let it accumulate. In the event you decide to let it accumulate, it may be capitalized. This means it couls be added to your principal balance and you will end up paying interest on it as well.
Change your repayment plan
If you’re struggling to make your student loan payments and can’t qualify for either deferment or forbearance, you may be able to negotiate a change in your repayment plan. To do this, you will have to contact the company that services your loan to discuss options for repayment. Before you do this, you might want to use the Repayment Estimator that’s available on the Studentloans.gov website. This would give you a look at the various repayment plans and see estimates of what your monthly payments might be.
Consolidate your payments
In the event you have multiple loans from different sources, you might be able to save money by consolidating them with a Direct Consolidation Loan. This would simplify things for you because you would then have only one payment to make each month. However, there are both pros and cons to one of these loans. For example, one of these loans would likely have a 30-year term, meaning you might be well into your 50s before you had it paid off. Plus, when you increase the term or length of a loan you’ll pay a lot zmore in interest. This means you should definitely compare this new payment to your current monthly payments to make sure a direct consolidation loan would be your best option. However, if the idea of a Direct Consolidation Loan appeals to you, here is a list of the student loans that could be consolidated with one.
• Direct Unsubsidized Loans
• Direct Subsidized Loans
• Unsubsidized Federal Stafford Loans
• Subsidized Federal Stafford Loans
• PLUS loans from the Federal Family Education Loan (FFEL) Program
• Supplemental Loans for Students (SLS)
• Direct PLUS Loans
• Federal Nursing Loans
• Federal Perkins Loans
• Health Education Assistance Loans
• Some existing consolidation loans
Finally, there has been a growing movement to forgive student loan debts. Here’s a video that discusses forgiveness and why it might not be a good idea.