When you apply for student loans as a college student, you assume that you're going to eventually get a full-time job to help pay off your debts. But as evidenced by the recent global recession, getting a job and paying off your student loans isn't that easy. In fact, many people are now stuck with student loans that they're unable to pay.
Forbearance
When you realize that you aren't going to be able to pay your student loan, the first thing you should do is call your lender and see what kind of options you have. Usually, your lender will offer you forbearance, which is a specified period of time during which you don't have to make monthly payments. Forbearance requires you to submit an application in which you must detail the reasons why you can't make your payments. If you're approved, your loans won't have to be paid for a maximum of 12 months; however, during this time, interest will accrue on your loans. You can make interest payments if you'd like to keep your principal from increasing, but it's not required.
Deferment
Similar to forbearance, a deferment postpones your student loan payment obligations until a later date. Bur the criteria for a deferment are more strict than those for a forbearance. Being approved for a deferment requires you to meet the economic hardship requirements specified by your lender; to qualify, you must provide proof of this hardship. You can also qualify for deferment if you're an active member of the military or if you're enrolled as a part-time or full-time graduate student. As is the case with forbearance, interest accrues on your loans unless you choose to make interest payments.
Consolidation
If you don't want to worry about accrued interest, you can try to consolidate your loans. The consolidation process involves taking all of your existing student loans and combining them into one monthly payment. Although previously you could get a lower interest rate by consolidating, this is no longer the case. But consolidation can help you keep track of your loans by giving you just one bill to pay each month. In addition, you might become eligible for alternative payment plans to lower your monthly payment, such as a longer-term or income-based payments. The downside to consolidating is that you can only do so once, so be sure it's the right move at the time you decide to consolidate.
Default
If you decide that there is just no way you can make your payments, you can simply stop paying your student loans. After 270 days, your loan will be in default. But before you default, make sure you're aware of the consequences. By neglecting to pay your student loans, you'll essentially destroy your credit, as well as the credit of anyone who co-signed your loan. With a default on your record, you can pretty much forget about getting a credit card or a loan of any kind in the future. Furthermore, defaulting doesn't absolve you of financial liability; you'll be charged as much as 25 percent of your loan amount in collection costs. It's strongly encouraged that you avoid this scenario by working with your lender to come up with a plan that works for you both.
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