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Dealing With Student Loan Debt

By Freida Michael


Financial difficulty and growing responsibilities make student loans challenging to repay. There is a possibility of relief through the federal student loan debt management program. After exposing your forbearance and deferment and fully aware of the effect of default, it is time to explore the options available to make your financial situation easier to handle.

Among the basic repayment and management options is an extension on the standard 120 months or ten years period. The extensions or other adjustments are usually based on your earnings. It is possible to find reprieve if you have gone back to school or are earning a significantly low income.

The Pay As You Earn plan is for those who have taken loans recently. It limits the monthly installment to ten percent of your discretionary income. You also will qualify for forgiveness after making a stipulated number of payments without exhausting your amount. Forgiveness is usually given after 120 repayments. This takes a huge financial burden off your back. It also frees money to be used on other responsibilities.

To qualify for Pay As You Earn forgiveness plan, you must produce evidence that you are experiencing financial difficulty. The first federal loan must also have been acquired after 1st October 2007. You also must have applied and been successful in eight Federal Direct or Direct Consolidation loan. The date for acquisition of either of the two loans is 1st October 2011.

Income Based Repayment plan is another option when dealing with your education debt. It was created and is operated by the federal government. It places a monthly repayment cap at 15 percent of your discretionary income. The government then forgives any balance that remains at the end of the repayment period which could be 120, 240 or 300 repayments.

Qualification for Income Based Repayment depends on your special circumstances. Your income and number of dependents reduces the amount you pay which is obviously lower than payments under the standard ten years plan. The amount is also compared to your income after adjustment based on family size. A higher debt ratio will increase your eligibility for the plan.

Income Based Repayment is usually hinged on the number of dependents and your total income. It means that you will not be making payments based on interest rates. The cap is placed on 10 or 15 percent of your discretionary income computed purely on the basis of number of dependents and income. Despite the fact that interest continues to accumulate, your balance will be forgiven after making the necessary payments.

Defaulting on student loans comes with grave consequences that would better be avoided. You will be considered to have defaulted if you fail to make payments over a 270 days period. There are lenient repayment plans that can help you avoid penalties and default.

There are a number of plans to make repayment easier and manageable. They include Standard Payment Plan, Guaranteed Payment Plan, Pay As You Earn Plan, IBR or Income Based Repayment, Extended Payment and Income Contingent-Payment Plan. Consult an expert in student loans to identify the best plan for you. This will ease your financial burden and keep you off default which comes with grave consequences.




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