Difficult financial situations, illnesses or other circumstances can make monthly student loan payments exceptionally difficult. Fortunately, borrowers with federal student loans can use deferments, a process that postpones payments. Deferments are granted for economic hardship, unemployment, military deployment or enrollment in school (at least half-time). Depending on the type of federal loan, interest may not accumulate during the deferment period. We can use a hypothetical example to further illustrate what deferments are and how they can help borrowers. Bob is a recent college graduate with a Bachelor of Arts in Business Administration and $17,500 in subsidized Direct Loans. For the last seven months, Bob has been unable to find a full-time job. With student loan payments fast approaching, Bob needs to take quick action. Bob decides to call up his loan servicer, where he is then instructed to fill out an unemployment deferment form for his loans. As instructed, he…
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We have written extensively on student loan horror stories involving six-figure debts and for-profit diploma mills ruining the financial lives of graduates and misleading them by promising success and prosperity after graduation. In other cases, students may borrow thousands of dollars while under the impression they will soon be in line for lucrative jobs and unaware of the potential financial consequences if their plans do not work out. Some former students and graduates have reported feeling blindsided by their debts, and if given the opportunity, they would go back and make different choices. What is undisputed however, is that society is failing to teach teenagers and young adults personal finance skills. We cannot expect students to make informed decisions on spending money if they lack personal finance knowledge. In many cases, students will not have the financial means to attend college without using loans, and it would be unfair to…
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Former graduates who are suffering with excessive federal student loan debt might be unaware of beneficial repayment options. In fact, we recently wrote a blog discussing why it is so important to know what student loan repayment options are available, and how it is wrong of loan servicers to hide this information from graduates. Graduates with federal loans (Direct loans) may also be unaware it is possible to enroll in multiple repayment programs. Among the most helpful repayment options are the Revised Pay As You Earn (also known as REPAYE) and Public Service Loan Forgiveness (PSLF) programs. How Does REPAYE Help Student Loan Payments? REPAYE was only recently introduced by the U.S. Department of Education to expand income-based repayment to 5 million borrowers. To help borrowers with excessive debt and low earnings, REPAYE caps monthly student loan payments at 10 percent of discretionary income. For borrowers who used loans for…
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