Senate legislation passed in 2010 makes it easier for graduates to repay student loans by reducing the percentage income earmarked for loan payments. Acceleration of loan forgiveness, for those who keep up payments as agreed, occurs at 20 years in the new program or five years sooner than before. That is good news for financially strapped new graduates and their families.
Repaying student loans challenges many graduates in a recession. Consolidate your student loans to lower monthly payments and evaluate other ideas to ease repayment of your obligations.
Credit Bureau Reports
Obtain a copy of your credit report from one or all three major credit bureaus. You may obtain a free copy of your credit report each year directly from each credit bureau---Experian, TransUnion and Equifax---or use a free online credit report site. Check the reports for accuracy and promptly report any errors. Each student loan reports separately to the credit bureau. Educational loans are usually structured for each semester's expense, so many graduates have several loans.
Defer Student Loans
Defer your loans. Deferment allows you to cease repayment of student loans for an agreed period. Lenders may agree to deferment in cases of economic distress, enrollment in school, military service or internships. Stafford, ParentPlus, GraduatePlus and Federal Consolidation Loans may provide deferment. Subsidized Stafford Loans defer all interest and principal repayments during deferment.
Loan Forbearance
Request forbearance. If deferment is not an option, collection and potential loan defaults cease with approved 12-month to 3-year forbearance intervals. Interest continues to accrue. Lenders may request documentation of proof of financial hardship, such as unemployment or disability. Continue to make payments until forbearance approval is received. Forbearance requests should be made through the loan servicer. Forbearance does not affect interest rates. Consolidate loans to lock in interest rates.
Consolidate Loans
Restructure or consolidate your loans. Consolidation offers a fixed interest rate. Some student loans may have variable interest rates and, as of 2010, historically low interest rates may offer large savings over the life of the loan.
Income-Based Repayment and Forgiveness Program
Income-Based Repayment (IBR) is one of many different options designed to assist borrowers of student loans. In 2010, the "current contractor for Direct Loan Servicing has incorrectly based IBR payments on the borrower's gross income...instead of the lower Adjusted Gross Income (AGI, or taxable income). As a result, these borrowers' monthly IBR payments are higher than they should be." Learn more about IBR in general, or whether your payment has been incorrectly calculated, at IBRInfo.org. Other particulars, such as debt-to-income ratio, determine if you qualify for lower loan payments.
Teachers, government employees and non-profit workers may qualify for federal student loan forgiveness after just 10 years of maintaining loans as agreed while working for the public good.
H.R. 2492 and Loan Forgiveness
President Obama's 2010-2011 budget proposes improvement to IBR to assist more financially stressed graduates with student loan repayments. To that end, H.R. 2492 proposes to end taxation of student loans forgiven through the IBR program.
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