Managing Student Loans

Students who take on federal student loans to finance a college education typically have a new loan granted each year until graduation, and some go on to take further federal student loans to finance post graduate study. Grants need to be applied for each new college year thus a student may graduate with four consecutive federal student loans, or even more if they consist of a mix of Perkins loans, subsidized Stafford loans and unsubsidized Stafford loans. Potentially a student with a mix of all three loans could graduate with twelve federal student loans to repay.

One of the simplest ways to keep track of all the necessary repayments is to arrange for payments to be made by automated debit. The paperwork and documentation relating to the loans should be kept together in an organized fashion. If interest rates fall it may be worth considering consolidating your federal student loans to reduce the total monthly amount you pay in interest on top of the principal.

When your finances allow then it is always excellent practice to overpay your student loans by making extra payments towards the principal: the lower the principal is the less interest you will be charged and the less you will repay over the long term. A wise move is to do this when you first obtain employment and still have the frugal mentality of a student and before you acquire a host of new financial obligations to meet. Paying down your loans early wherever possible is doubly wise as it is always hard to foresee a change of circumstances in the future.

If your circumstances do make it hard for you to keep on top of your obligations to meet monthly payments on your federal student loan then never ignore the situation. If you fail to meet payments as due then the loans will go into default. Instead contact the lender to discuss what the available options are.  It may be only necessary to consolidate loans over a longer period at a lower payment, but this will cost you more in the long run.

It is a better long term solution if you are able to qualify for either loan deferment of loan forbearance, for a period of time. Whilst deferment is generally granted to those engaged in active Military positions, or in a graduate program, it is also automatically given to those who qualify for welfare payments. Those who are out of work but actively looking for work may have their federal student loans deferred for up to three years. Whilst a loan is in a state of deferment then the interest payments do not need to be paid on subsidized loans but only on unsubsidized ones.

Those who have suffered a permanent disability due to injury or illness which prevents them ever working can apply to have their federal student loans cancelled. Student loan forbearance can be requested by those suffering ill health or those whose loan repayments total more than 20% of their monthly income. Forbearance of loans is available for up to one year and can then be reviewed.

Whilst both forbearance and deferment are ways to cope with difficulty repaying your student loans it is important to understand that if you wait and ignore any repayment problems then the option of deferment is will no longer be available to you if the loans go into default.

There is further information here regarding the consequences of defaulting on federal student loans.