Given the cost of college these days, few people can afford to pay all the tuition and related expenses out of pocket. Many turn to student loans to make up the difference. There are some things you need to know before you take out the loan. Below are some less-known, but still important, facts about student loans. (Note: Most of these facts apply to federal, not private, student loans.)
You may be eligible for a loan forgiveness program.
Depending on your career and you financial situation, you may be able to get all or part of your federal student loan forgiven. Some options include:
- Eligible teachers who work at low-income schools for a certain number of years.
- Government and nonprofit employees may be eligible after 10 years of service.
- Doctors, dentists, and other professionals who join the National Health Service Corps.
- People who complete a year of service with AmeriCorps.
You may be able to put off paying back your student loans.
As long as they maintain at least half-time status, most students won’t have to start paying back their student loans until after they graduate or leave school for another reason. Many loans also offer a grace period after the student leaves school during which payments aren’t required. If you return to school and still have unpaid debt from your earlier education, you should be able to defer payments on those loans. Deferments are also available to active-duty military members serving during a war or time of national emergency and for those who are suffering economic hardship or unemployment.
Even if you declare bankruptcy, you’ll probably still have to back your student loan.
As a general rule, most student loans cannot be discharged during a bankruptcy proceeding. However, there are a limited number of situations when declaring bankruptcy may allow you to get out from under burdensome student loans. If you can prove your loans are causing you undue hardship, you may qualify for relief, but that is a complicated and expensive task. Borrowers who are permanently disabled or have a serious medical condition may have more success in getting their loans discharged in a bankruptcy. Also, it’s usually more difficult to discharge federal loans than private ones.
If you cosign for a loan, you’re responsible for that debt, no matter what happens.
Parents who cosign on their child’s private student loan are just as responsible as their child for paying off that debt. If your son or daughter can’t make the payments, you’ll have to pay.
You may be able to adjust your student loan payment.
If you have federal student loans, you can select a repayment plan that fits with your income and budget. The standard repayment plan requires fixed payments for 10 years, until your loans are paid off. But you can also select graduated repayment (where your payments start low and gradually increase until your balance is paid off at the end of 10 years) or extended repayment (where you have lower monthly payments, but it may take as long as 25 years to pay off your entire loan). Finally, there’s income-based repayment, which caps your payments at 15% of your discretionary income. You make payments based on your income for up to 25 years, at which point any remaining loan balance may be forgiven. To be eligible, you must have a partial financial hardship. Other payment options include income-contingent, pay as you earn, and income-sensitive. You can find more information about all these payment options at studentaid.ed.gov.
Copyright © Integrated Concepts 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.