After you graduate college, you (and your co-signer if you have one) will be responsible for repaying any student loans you’ve taken out, private, federal, or both. Some loans, like federal loans, will have a six month grace period after you graduate or leave school, while others will require payment immediately. However, before you get to that point—and before even accepting a loan—it’s important to understand your rights and the protections available to you if you ever run into trouble repaying your loans.
Economic Hardship Deferment
For federal loans, you may qualify for economic hardship deferment. This allows you to stop payments on your loans for one year, which can be renewed for another two if you are still having trouble after 12 months. For subsidized loans during this period, the federal government will cover your interest, but interest on unsubsidized loans will be added to the loan balance.
To apply for the deferment, you must meet certain qualifications. For example, you must be receiving public assistance, be a Peace Corp volunteer, or be working full time with low income. If you qualified the year before, you can qualify for your next renewal. Deferment is very rarely used for private student loans.
Income Based Repayment
Federal loans also offer income based repayment if you find yourself struggling after leaving school. This means your monthly payments will increase or decrease depending on your income. Sadly, this option is rare or nonexistent for private loans.
Your repayment plan will be calculated off a percentage of your income. If you make 150% below the poverty line, your repayment amount will be zero.
Forbearance is one of the few student loan borrower protections when it comes to federal and private loans. It is similar to deferment and allows you to suspend payments on your student loans. However, interest will continue to accrue during this period.
For federal loans, you can receive forbearance for one year which may be renewed for another four years, for a total of five. For private loans, you may only use this protection in three month increments for up to 12 months total. Keep in mind that some private lenders will charge fees to receive a forbearance and you must be approved by your lender.
It is extremely important to do your research into your repayment options and protections before you accept any student loans, federal or private. If you ran into money problems after graduation, it’s a good idea to know what solutions may be available to you. For private loans, always talk to the lender before you sign up about repayment options and how they handle the inability to pay a loan.
You should never simply stop paying your loans, even if you qualify for income based repayment, forbearance, or deferments. You must apply for these protections. If you don’t, you could default on your loan, leading to damage to your credit score, fees, and more financial and legal problems. Always contact your lender, private or federal, if you are having problems repaying your loans or if you have any questions regarding repayment options.
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