The goal of young families is to start their lives with a clean financial slate. Sometimes this can be accomplished by getting rid of credit cards, spending less than they earn, and building an emergency fund. Other times, like with excessive student loan debt, clearing the slate is harder to accomplish. According to the website American Student Assistance, outstanding loan debt has exceeded $1 trillion in 2013, almost $900 billion of that in federal assistance. It seems a daunting task to reduce this debt, but there are some things to help mitigate the consequences. Below are a few of them.
One of the things recipients don’t realize is each student loan they receive comes with a different interest rate and payment. The more of these that pile up, the harder it is to keep track of them all. Best thing to do in this situation is to consolidate all of the loans into one. This helps combine everything into a single payment as well as keep a steady interest rate.
Deferment and Forbearance
A deferment or forbearance of a student loan takes places in situations where a young family’s economic status has tumbled due to a job loss or medical emergency. Those granted a deferment are allowed to stop payments of their principal and interest for a short period of time, somewhere between six months to a year. Loan holders who cannot have their payments deferred can try for a forbearance. This also stops the payments for a temporary period; however, interest continues to accrue on the loan. It’s best in either situation to correct your financial situation during the temporary hold period so the loan isn’t extended or too much interest accrues.
Should deferment and forbearance not be an option, speak with a loan provider to see if the payments can be extended. For example, an income-based payment plan adjusts the amount you dole out depending on your current salary. This rate can change as your income grows or shrinks. The caveat to this option is it may extend the length of your loan payments to a point your paying for them when your children are in college. Some loan outlets, like Salle Mae, allow you to pay what you can afford. Again, this can stretch the payment cycle out far beyond your intended goal.
It’s rare, but there are situations where portions of your student loans can be forgiven after a certain period of time. For example, The Public Service Loan Forgiveness Program removes the balance remainder of a loan after a recipient has made 120 payments and maintained a full-time public service job in certain areas. Another program, the Teacher Loan Forgiveness Program, forgives a total of $17,500 on regular federal Stafford loans if you teach full-time for five complete and consecutive academic years in certain elementary and secondary schools that serve low-income families.