A. October marks the end of the six-month grace period on many federal student loans. For recent graduates, that means the free ride is over and you’ll have to start making monthly student loan payments.
Depending on your unique situation, there are different questions you need to consider, some of them are:
- Could I save money on my student loans by consolidating or refinancing?
- Could deferment, forbearance, or an income-based repayment plan help my monthly cash flow?
- How to repay my student loan as fast as possible?
In this blog post, we will focus on what to do if you’re having trouble making payments.
If your grace period is ending and you haven’t found a job yet, or you’ve been making payments on schedule but recently lost your job, you should consider options to reduce or defer your monthly student loan payments until you have an income again.
If you have federal student loans, you can request a deferment or forbearance to temporarily stop making student loan payments.
Federal student loan deferment
If you meet eligibility requirements, a deferment will delay the repayment of both principal and interest of your federal student loan. If you are unemployed, you may be eligible for a deferment for up to three years. Other situations in which you may be granted a deferment are if you are enrolled at least half-time in college, during active duty military service, or in an approved graduate fellowship or period of service (e.g., Peace Corps).
Federal student loan forbearance
If you do not qualify for deferment, you can apply for forbearance. A forbearance will delay your federal student loan payment for up to 12 months. Your lender is required to grant you a forbearance if you meet certain criteria – for example, if you are in a medical residency, an approved teaching program, or the total amount you owe on your federal student loans is more than 20 percent of your gross monthly income.
If you do not meet the criteria for a mandatory forbearance, your lender may still grant you a voluntary forbearance at their discretion.
Keep in mind that with forbearance, interest continues to accrue. You can choose to pay the interest each month or make no payments at all, but doing so will significantly increase the total amount you’ll owe on your loan.
Federal income-based repayment programs
If you have a job and want to continue to make progress paying down your student loans but are still having trouble making your full payments, you might consider income-driven repayment options on federal student loans.
There are several income-based repayment options available that range from 10 to 20 percent of your discretionary income. For the most generous income-based repayment plans, eligibility depends on your actual income and other monthly expenses, but if your total loan balance exceeds your annual income, you may be eligible.
Private student loan interest-only payments
If you have private student loans, deferment and forbearance are not an option. Although you may be able to negotiate a short-term deferment of sorts with a private lender, they are under no obligation to grant one.
If you are having trouble making student loan payments with a private lender, you should contact them right away. Most likely, the private lender will offer you an interest-only repayment plan for a certain period of time. This will significantly reduce your monthly payment, but you’ll end up paying more for the loan in the long run.
In our next blog post, we will discuss ways to reduce your student loan costs.