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My Student Loans Are Coming Due Soon. What Do I Do?

September 24, 2013




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For many recent college graduates, the time of reckoning will be soon upon them.   They have graduated college and now the in-school forbearance of their student loans is running out.   Depending on the amount of student loans taken out, the borrower’s current employment status and income, and whether the loans are federal or private, the payment that will be due can be unaffordable and terrifying.

Most people facing their student loans first coming due are absolutely terrified about what to do especially if they can’t make the expected payment.  Panic sets in.   Unfortunately, too many people ignore their student loans because they can’t afford the payment.   That starts the downward spiral of the graduate’s financial health, sometimes permanently.  This is why it is important to be aware of your options from the onset instead of trying to figure what, if anything, you can do after you become delinquent on your student loan payments.

Most student loan borrowers are familiar with deferments as their student loans were deferred while they were attending school.  If you have either a private loan or an unsubsidized federal loan, any interest that accrues during the deferment period is capitalized at the end of the deferment period, if unpaid. This is the reason that the student loan principal balance is higher when the payments starting coming due after graduation.   The accrued and unpaid interest is not part of the principal balance of the loan.  If you have a subsidized federal loan, the during the deferment period, the federal government will pay the accrued interest.  Deferments on federal loans, can only be obtained for very specific reasons, including be enrolled in school at-least half time or during times of unemployment.  While, theoretically, the in-school deferment could last forever(if a student was able to maintain at least a half time status in school for that long), the unemployment deferment has a three (3) year duration, which may be taken at once or as needed.  Once the three year unemployment deferment is used, there are no more unemployment deferments available.   For private loans, deferments are up to the lender who will provide the terms and conditions under which they will grant a deferment.  Usually, they will grant in-school deferments but unemployment deferments are varied by lender.   Some will grant the same three year unemployment deferment that exists for federal student loan borrowers.

Forbearances are also temporary and permissible periods where a student loan payment is not required to be made.  Interest accrues and you have the option to make the interest payments or have them capitalized.  There are some grounds that automatically entitle you to a forbearance and if you don’t qualify for one of those grounds the forbearance, then the lender has the option to grant one to you.

While all of this maybe overwhelming, it shows the importance of handling your student loans correctly from the moment they become due.  You have very limited options to push out the payment date of your student loans and by doing so, you end owing even more before your payments start.

 While your options are very limited with respect to private student loans, it is best to contact your lender early and explore extended payment options, however with federal student loans, getting an unemployment deferment may be the worst thing that you can do.  The best thing you can do is explore alternative payment plans, particularly the Income Based Repayment and Income Contingent Repayment options. These options allow you to have a payment as low as $0 per month, since they are based off the borrower’s income, and allow for discharge of the outstanding balance after 25 years of payments.   By choosing one these repayment options, you are not using any of the deferment available to you, your loans are in a current status, and you are working towards the eventual discharge of your student loans.  With these options available to federal student loan borrowers, why would anyone ever choose an unemployment deferment ever again?

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