Student Loan Survival Guide

Drowning in student loans? Save yourself from debt using our simple step-by-step plan.

electronic payments. Between consolidating his debt and paying by debit, this student was able to lower the monthly payment for his Perkins and Stafford loans from about $300 to $138.

ALERT LENDER BEFORE MISSING A PAYMENT. “The consequences of default are significant and could include a tarnished credit rating, garnishment of pay, and the inability to obtain additional aid and future credit,” says Chris Greene, spokesman for the U.S. Department of Education. “In addition, legal action can be taken to recover unpaid loan balances and fees.

If borrowers are experiencing trouble meeting their obligation, they should contact the Department of Education at 1-800-4FED-AID or their lender directly.”

Borrowers have 270 days of nonpayment before their loan goes into default, according to the Department of Education. If the loan holder can’t recoup its money, it may then decide to use an outside agency to try to collect the money. If that happens, as much as 25% of the amount of the loan could be added to the loan to cover the cost of collection.

“The last thing the department wants is for a borrower to go into default and force us to collect on the loan. Borrowers experiencing difficulties in making payments should contact their lender or the department, and we will work with them,” Greene says. “Remaining in an active, current repayment status is in the best interest of the borrower and the department.”

The government is currently trying to collect about $31 billion in defaulted loans, according to the Department of Education.

TAKE A BREAK FROM PAYMENTS. Borrowers can postpone repayment through deferment or forbearance. Both allow for a period of time when the borrower doesn’t have to make payments, and they are better alternatives to defaulting.

Deferment allows borrowers to stop loan repayment for specified periods of time under certain conditions, such as re-enrollment in school, unemployment, or economic hardship. You must formally request a deferment from your loan holder. You may need to complete a deferment form and show documentation that you are eligible for the deferment, according to the Department of Education. There is a three-year limit for deferring loans for those with an economic hardship or full-time unemployment. There is no limit for deferment based on re-enrollment in school.

Forbearance is an option for borrowers having temporary financial difficulty. You may suspend or reduce payments under certain circumstances and for specified periods. Forbearance is granted in increments for up to one year.

During deferment and forbearance periods, interest continues to accrue on your loans. This interest will be added to the amount you owe and must be repaid when payments resume. The only exception is for subsidized Stafford Loans. The federal government pays the interest if students qualify for deferment, according to Sallie Mae.

With forbearance, you may choose to pay the interest as it accrues. Any unpaid interest is added to your principal balance, no more frequently than quarterly, according to Sallie Mae. For example, if you owe $15,000 at 5% interest and have a 12-month forbearance, interest would be applied only four

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