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With the price of college education soaring, more and more young adults are faced with a growing compilation of student loans. Student loans are designed to help students finance their college tuition, living expenses, and other costs associated with their education. Although these loans may seem daunting, student loan repayment could be made less overwhelming with the right plan and a general knowledge of the loan repayment process.

Choosing a Loan Repayment Plan

There are a variety of payment plans available, each with different time frames and eligibility requirements. If you do not manually elect a plan, you will automatically be placed on the Standard Repayment Plan, which is the most popular payment method allowing borrowers to pay less over the course of the repayment period than other plans. All borrowers are eligible for this plan, with fixed payments for up to 10 years and up to 30 years for consolidation loans. Other plans include the Graduated Repayment Plan, Extended Repayment Plan, Pay As You Earn Repayment Plan, Income Based Repayment Plan, Income Contingent Repayment Plan, Income Sensitive Repayment Plan, amongst others. Before contacting your loan servicer, you can find online repayment estimators to see which plans you may be eligible for and what your monthly payments may look like. 

About Loan Servicers

Loan servicers are assigned to all borrowers by the U.S. Department of Education after the initial loan amount is paid out. Your loan is disbursed (or paid out) once the money from your lender has been issued to you or the school directly. Your loan servicer should be in contact with you after the loan has first been disbursed. Most payments made by loan servicers occur in a minimum of two payments.

What Are Consolidation Loans?

A direct consolidation loan is a federal loan made by the U.S. Department of Education, allowing you to combine one or more federal student loans into a single loan. This consolidation of loans allows borrowers to make only one payment per month, and the time frame that the repayment must be complete by is extended. You may want to consider a consolidation loan if you have multiple ongoing loans for a more simplified and structured process.

What Happens if I Don’t Pay My Loans?

If you fail to make loan payments, you face the risk of going into default. To default on a loan simply means that you failed to make your loan payment by the appropriate time according to the promissory note that was signed at the time the loan was initially made. Following the first missed payment, your loan becomes delinquent until all payments are made to bring the loan up to date. Loan servicers report these delinquencies to credit bureaus, negatively impacting your credit score and thus making it difficult to borrow money in the future. Having a negative credit rating entails much higher interest rates and often causes difficulties in trying to get home owner’s insurance, a cellphone plan, and more.

Ways to Keep Up Loan Payments

  1. Some may have trouble meeting the due date of their monthly loan due to the particular timing of their income payments or other reasons. If this is the case, there are options to change the payment date of your plan by contacting your loan servicer.
  2. If you are having trouble meeting the monthly payments altogether, you may need to consider changing your repayment plan. Some plans feature lower monthly payments. Furthermore, plans such as the Income Based Repayment Plan base the monthly payment on your annual income, making loan repayment more attainable.
  3. If you have more than one student loan, you can streamline the repayment process through a direct consolidation loan, as mentioned previously.
  4. If none of these options seem feasible, you may be eligible to postpone your loans to pay back at a later date. However, this option may allow for interest to continue accumulating even during the period of time when payments are not being made, making for a costlier option in the long run.

Loan Discharge and Forgiveness

Loan forgiveness can be defined as the cancellation of any part of a loan, if not the whole loan in itself. If a loan is forgiven, you are no longer required to repay the remaining portions of that loan. Loan discharges can arise for a variety of reasons. Your obligation to pay a loan may be curtailed in exchange for beneficial services such as teaching or public service. Other examples that may qualify for loan forgiveness include unpaid refund discharges, false certification of student eligibility, closed school discharge, and unauthorized payment discharge. If you think that you may qualify for a loan discharge, you can contact your loan servicer to see if you are eligible.

Taking out a loan is often a helpful option, especially when it comes to paying for a college education. However, it is important to understand the array of loan repayment possibilities, and the potential consequences of irresponsible loan repayment.

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