How Can I Lower My Monthly Payments?
When you graduate you are automatically given the Standard Repayment Plan, which has the highest monthly payment but will give you the cheapest loan overall and the shortest payback term, usually 10 years. But start up salaries only stretch so far, and the need to eat often trumps the ability make your monthly payment!
There are several options to lower (not eliminate) your monthly payments. Most federal loans have these options:
- Graduated repayment: your monthly payments can start as low as interest-only and gradually rise as you become more financially stable.
- Income-sensitive: you choose to put between 4%-25% of your income towards your loan, the percentage paid must at least cover the monthly interest due.
- Extended repayment: by extending the life of the loan to 25-30 years, you will lower your monthly payments.
Keep in mind, all of these options will extend the life of the loan. This means you will pay less now, but you will be making payments for a longer period of time. By helping your cash flow now, in the long run, your loan will cost you more money because you will be making interest payments longer. The quicker you pay off your loans the less interest you pay during the life of the loan. This is not something to stress over! If you need to reduce your payments now, remember - You ALWAYS have the option of going back to a Standard Repayment plan at any time or paying the loan off all at once with no penalty.
Typically, private student loans do not offer as many repayment options as federal loans. If you need to lower your payments, take the personal approach. Call your lender and explain your situation. Student loan companies would rather have you call them and tell them “I can’t pay, what should I do about it” than have you stop paying altogether. So, if you’re having trouble making your monthly payments because they’re too high, pick up the phone, call your lender and find out your options. For example, as of June 1, 2009, Sallie Mae is now offering a graduated repayment option to students with private loans.
**Fab&Fru Tip: A good trick for paying your loan faster without breaking the bank is to add a little extra money each month (or whenever you get a windfall) towards paying off the principal (the original amount borrowed). By adding just a few hundred dollars each year towards your principal payments, you lower your interest payments over time and you will shave several years off the repayment term. This works regardless of what repayment plan you chose or if you’re on the Standard Plan.
What if I simply can’t pay every month?
Paying for college is only getting more expensive! And of course we’re facing a reeling job market that isn’t exactly waiting for young, inexperienced professionals with open arms. Regardless of whether or not you’re reaping the career building benefits of your top-notch education, the bottom-line with loans is that you have to pay them back…
Since 1998, student loans cannot be forgiven in a bankruptcy or through other legal means. Nothing releases borrowers from their responsibility!
But if you have any of these symptoms:
• economic hardship
• unemployment
• military deployment
• enrollment in school
• internship
• national service
… then you may be eligible for a deferment or forbearance.
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