Student Loan Consolidation
You may want to consider student loan consolidation, since this process can lower your monthly payments and lock in a low interest rate. It is important to realize that consolidation can extend the life of your loan and greatly increase the amount of interest you pay. If you do consolidate, you may consider paying the loans back at a quicker rate once you are in a better financial situation. You may need to consolidate to a Federal Direct Loan if you want to qualify for income-based payment options or loan forgiveness in the future. Student loan consolidation may also be available for private student loans. Be sure that you never consolidate your federal student loans into a private student loan, because you will lose many of the benefits that come with federal student loans like income-based payments and hardship deferment. Consolidation is similar to refinancing, but there are differences. Generally, your loan refinancing options will depend on your credit score, while your loan consolidation options will not. Refinancing issues a separate, new private loan through a financial institution like a bank. Consolidation averages out all outstanding loans into a single remaining loan.
Unemployed Deferment
You are allowed to have three years of unemployed deferment on your federal student loans. You can take advantage of this deferment if you do not have a job. Since you are only allowed three years, you should carefully consider your options before claiming deferment. During deferment, the federal government will pay the interest on the subsidized Stafford Loans. You will be responsible for the interest payments on the unsubsidized Stafford loans. Deferment is not a permanent solution and it will not reduce the amount you end up paying back. However, it is a good option if you are in a financial situation where money is tight and you know things will improve shortly, like finding a job after you are laid off. In order to qualify for deferment, you need to be current on your loan. Contact your lender as soon as you think you may need to defer the loan. Do not wait until you have missed a payment.
Economic Hardship Deferment
If you have a low paying job you may qualify for economic hardship deferment. This is usually for a specified amount of time. Your lender will let you know how long you have. If you do qualify, take the opportunity to really focus on changing your financial situation. You may take the money you were paying for your student loan and apply it to credit card debt. If things are really tight you may be barely scraping by. Be careful not to add more debt to the picture.
Forbearance
Forbearance is your final option when it comes to paying back your student loans. If you are having difficulty making your payments, then you need to contact your lender. They are usually willing to allow you to make a lower payment rather than put the loan into default. That should be your last option, however. It is important to be open with your lender, because they do want you to repay the money. By communicating with them when you have a problem, you can generally avoid being put into default on the loan. If you have a private student loan, it is unlikely that forbearance is an option. It is important to pay off your private student loans as quickly as possible, because they have higher interest rates and are not as flexible with dealing with you if you have difficulty making payments.
Income-Based Payments
If you have a low income or a large family, you may qualify for income-based payments. The student loan will be based on a percentage of your income. You can have the balance of the loan forgiven after 20 or 25 years, depending on when you got the loan. This is a good option to consider if you are struggling to make ends meet. You will need to submit proof of income each year to stay enrolled in the program. You may also qualify for the Pay as You Earn (PAYE) or Revised Pay As You Earn (REPAYE) plans, which operate in the same way.
