What To Do About Your Federal Student Loans After College

So, you went to college. Whether you went after kids or before, apparently you took out some student loans, or you wouldn’t have any interest in this article. So now you’re looking at your statements, and if you’re like me, you’re wondering how on earth you wound up that far in debt. Fortunately, you have several options when it comes to making your loans payments.

Loan Consolidation

If you aren’t that far in debt, and you have a reasonable expectation of being able to make the payments, then you may wish to consider consolidating your loans. That means that all of your loans are put together, so you would then have one loan for the total amount, not several smaller loans with different interest rates. There are many benefits to loan consolidation, which include:

1) The probability of lower payments
2) A Single due date, with a single lender
3) No credit check or fees necessary
4) No need for a co-signer
5) Interest that you pay on federal student loans is tax deductible.

Making Payments Based On Your Income

If you can’t afford the traditional payments once you’re done with college, then you might benefit from income based payments, or IBR. This type of payment is especially beneficial if the amount of student loans that you have taken out are not appropriate for someone with your income and family size to pay back. However, because you will be taking longer to pay your debt back, you will accrue more in interest than with traditional payments, and ultimately you will pay more.

Another income based way of making payments is the ICR, or the Income Contingent Repayment Option. You can only make payments this way if your loan is a direct loan, and your payments will be re-evaluated each year. Under this plan, your payment each month will be the smaller amount of either:

1) 20 percent of the money you have left over each month after providing for the essentials; OR
2) What you would repay if your loan was paid back in twelve years ( instead of the standard ten years), multiplied by an annual interest rate that will vary based on your income and family size.

Both of these types of payments carry a maximum 25 years to pay back your debt. That does mean 25 year of actually making payments, so any time spent in deferment or forbearance does not count.

If after 25 years of making the agreed-to amount in monthly payments, you have not eliminated it entirely, the debt is forgiven. If that happens, though, it may count as income and you might have to pay taxes on it. If you would like to apply to consolidate your loans into more affordable payments, go here: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

Income-Sensitive Payments

A third way of making payments in proportion to your income is the income-sensitive payment.

As you make more or less, your payment increases or decreases immediately. If you want to apply, you will need to contact your lender directly. As of November, 2010 FFEL loans are the only type of loans that are eligible. You will need to pay your debt back in no more than ten years under this plan.

Career-Specific Loan Repayment

Due to the critical shortage of teachers and Registered Nurses in some parts of the country, there are a few limited ways to apply for your loans to be forgiven.

Registered Nurses must be citizens of the United States, or National and Lawful Permanent Resident.

Additionally, if you would like to apply for this, you need to have graduated from an accredited nursing program, and that program needs to have been in the United States. You have to have passed all of the necessary state tests, and have a current license. Finally, you will need to be working full time ( at least 32 hours per week) in an approved non-profit medical facility.

Each year, there are many applicants, but only a small percentage of people get approved. Certain groups of people, such as a person with a very high ratio of debt to income, will have priority. Applications each year are accepted starting in February and ending in either March or April.

If you would like to apply for this, and believe that you are eligible, you can get more information on applying here: http://www.hrsa.gov/loanscholarships/repayment/nursing/eligibility.html

The Teacher Loan Forgiveness Program is appropriate for teachers who would like to have up to $17,500 forgiven, and who are interested in committing to work for five years in a low-income elementary and middle schools. There are many conditions that apply to this, but if you meet the existing qualifications, it’s a great way to eliminate all of that nasty student debt AND give something back to the community. New teachers are lacking everywhere in the country, but there is a particular need for for new techniques and energy at most low-income schools. If you think that you are eligible for this program, you can get more information here: http://studentaid.ed.gov/PORTALSWebApp/students/english/cancelstaff.jsp

The most important thing to remember is that student loans are a debt that will NOT go away. It is almost impossible to get rid of it in bankruptcy, and there have been cases where people have defaulted on loans for many years, but eventually they were forced to pay it back out of their Social Security
retirement benefits. If you cannot afford payments, and just need to put them off for a few months ( without any payments) you can apply for forbearance or deferment. To do so, go here: http://www.staffordloan.com/repayment/deferment.php

Even while you have applied for help with your payments, you will need to make the full payments until you receive verification of the new arrangements. If you do not make your payments on time, and have not made prior arrangements, you risk legal action. At the very least, it can go on your credit report and it could even effect your ability to consolidate your loans, or apply for a forgiveness program.