The Straight Facts on Paying Back Your Student Loans

Dear College Made Simple reader,

For high school students moving full-steam ahead toward college, an uncomfortable thought is having to face down their student loan debt on the other side of their diploma.

According to The Project on Student Debt, 2010 college graduates carried an average student loan debt of $25,250. Adding to that, unemployment for recent college graduates increased from 8.7% in 2009 to 9.1% in 2010.

However, there are smart ways to pay them back, along with options — should you have trouble repaying them.

Paying Back Your Student Loans: What To Expect

It goes without saying, you have to pay them back. Seems obvious, right?

Yet, according to Finaid.org, somewhere between one-fourth and one-third of student loan borrowers’ first payments are late or delinquent. To them, the inevitability of repaying students loans isn’t as understood as the rest.

Starting off with a late – or worse a delinquent – initial payment jeopardizes your credit score, and could result in fees that make the first few bills even harder to pay then they already are. If you continue missing payments, the government has the authority to recoup what you owe in student loans from your paychecks, tax returns and your social security.

If you include the cost of interest and collection charges, people who default on their student loans end up paying up to 122% of the original loan, according to Finaid.org.

So let’s be clear: It’s far less expensive to pay loans than it is to avoid your loans.

You Have More Repayment Options Than You Think

For decades, people had limited number of options to repay their loans. The recent financial crisis changed that. In 2009, the U.S. government created an income-based repayment option for those whose current income isn’t enough to repay their debt.

Here’s how it works: Your lender sets a regular repayment amount based on where your income falls in relation to the poverty line. Depending on a number of factors, you may be given an option to pay less than the standard repayment. On top of that: Remaining debt is automatically forgiven if you commit to the repayment plan for 25 years. If you work full-time as a public service job or at a non-profit organization, remaining debt is forgiven after 10 years.

You can also apply to extend the length of repayment of your federal student loans. This will reduce your monthly repayments by a significant amount. It can seem like a huge relief, but by the time your loan is repaid, you will have forked over a substantially higher amount in interest.

For example, if you turn your 10-year repayment plan into a 20-year one, you’ll be doubling the amount of interest you pay. The lower monthly payment only makes it seem like you are saving money.

If You Still Can’t Pay Your Loans, You Don’t Have to Default

Better said, you don’t have to default immediately.

Deferment and forbearance are other ways to postpone monthly payments if you can’t afford them. And both are far better options than default.

With deferment, you are exempt from paying interest on subsidized loans – in many cases because you are back in school, enlisted in the military, or in the Peace Corps. If you are granted forbearance, you still have to pay interest. If you can, it’s best to pay it during forbearance to keep it from accruing.

To your college funding & admissions success,

Scott Weingold

Co-Founder, College Planning Network LLC

Publisher, CollegeMadeSimple.com – The free educational resource of College Planning Network

 

Related Articles:

How to Get a Student Loan “Bailout”

Recent Changes in Student Loans: “Loosing the Middle Man”

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Editor's Note: Scott Weingold has been ranked the #1 “College Financial Aid Expert Worth Knowing About” in the entire country by CollegeStats.org.  He has co-authored the book, “The Real Secret To Paying For College. The Insider’s Guide To Sending Your Child To College – Without Spending Your Life’s Savings.” Scott also publishes a popular free online newsletter, “College Funding Made Simple" which reveals insider’s tips, methods, and strategies for beating the high cost of college.

Scott is the co-founder and a principal of the widely renown College Planning Network, LLC – the nation’s largest and most reputable college admissions and financial aid planning firm. CPN is a proud member of the Better Business Bureau, the National Association of College Funding Advisors, the National Association for College Admission Counseling, the National Association of Student Financial Aid Administrators and the Student Affairs Administrators in Higher Education.

Scott, along with his college funding advisory team, helps thousands of families throughout the country with their college planning needs and offers a series of free educational webinars and workshops on “How To Pay For College Without Going Broke In The Process!” He's been featured or mentioned in The Philadelphia Inquirer, Yahoo News, TheStreet.com, Voice America with Ron Adams, Crains Cleveland Business, and on Cleveland Connection with James McIntyre.  Scott has published numerous articles and is a professional speaker who has addressed thousands of audiences online and offline throughout the United States.  His actionable insights and candid, open approach have earned him & his team numerous media interviews, citations, and speaking opportunities, and his free online video workshop is one of the Internet’s most widely viewed pieces in the college funding space.