Federal student loan payments are set to resume on May 1 after a two-year pause tied to the COVID-19 pandemic, and many borrowers are not financially ready to make them. A recent report from the Federal Reserve Bank of New York found that a large percentage of borrowers are in danger of defaulting when payments resume.
Defaulting on student loans can have numerous consequences, ranging from hurting your credit score to being taken to court by your loan provider. Rather than risk defaulting, you should look into other options. Here are a few recommendations from the Debt.org website.
Negotiate New Terms with Your Loan Provider
As Debt.org noted, it’s in the best interest of loan companies to do everything they can to ensure you keep paying. If you let them know your circumstances, they might rework your repayment plan to make it easier for you to afford the monthly payment. Just make sure the plan doesn’t end up costing you an arm and a leg. You don’t want to wind up paying exorbitant interest rates and fees over a long period of time just to get a lower monthly payment.
Enroll in an Income-Driven Repayment Plan
Most federal student loan borrowers are enrolled in Standard Repayment Plans, in which the debt is paid off in 10 years. These are the fastest and cheapest way to pay off loans. But you can also opt for Pay As You Earn, Repay As You Earn, Income-Based Repayment and Income-Contingent Repayment plans. All apply to join one of these plans and even move from one to another to meet your needs.
The plans typically involve paying 10% to 15% of your discretionary income, depending on which program you choose. You should see a significant reduction in your monthly loan payment.
Student Loan Deferment or Forbearance
A deferment will let you skip making payments for a set period of time as long as you meet certain criteria, which typically include the following: being enrolled in school at least half-time; being enrolled in a graduate fellowship program; being in an approved rehabilitation program for the disabled; being unemployed and seeking employment; suffering economic hardship; and serving on active duty in the military.
Deferments are also available if you have a Perkins Loan and are a full-time law enforcement or corrections officer or serve in the Peace Corps.
With a student loan forbearance, you are allowed to stop making payments for a set period of time or have your payments temporarily reduced. Interest will continue to accrue, however. There are two categories of forbearance: general and mandatory. General forbearances might be granted if you have expensive health problems, or if you meet certain debt-to-income criteria.
Loan servicers are required to grant mandatory forbearance if you meet various conditions, such as serving in a medical or dental internship, serving in an AmeriCorps position for which you received a national service award, or serving as a teacher that would qualify you for teacher loan forgiveness.
Earn Extra Income
If you don’t currently earn enough income to repay your student loan, look into a second job or a side gig to bring in more money. Side gigs can range from doing lawn work in your spare time to being an online reseller or online instructor if you have a particular area of expertise.
As for second jobs: The Great Resignation has contributed to a massive labor shortage in many sectors of the economy. You might find it especially easy to land part-time jobs at retail chains or hospitality businesses such as restaurants and hotels.
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