Defaulting on student loans is a big deal, but it isn’t the end of the world. There are steps you can take to get out of default, but start by working with the company holding the loan. Ignoring the problem is useless and sure to exacerbate the situation. If you’re in default, take action today to correct the issue and get back on track. It might seem impossible to pay off thousands of dollars, but there are solutions.
Remember that right now, bankruptcy does not forgive student loan debt. If you ignore your debts, eventually your wages will be garnished: student loan creditors will get their money one way or another. Instead of looking for a shortcut, take advantage of the official options. There’s more than one way to get out of default.
Consolidation is usually the only way to lower interest on student loan payments, which can make them more affordable. However, once you opt for consolidation, some other programs for re-payment are no longer available. Before going this route, find out exactly what the interest rate will be and if that’ll definitely get you affordable monthly payments. Call the company holding your loans and ask about consolidation to get started.
2. Peace Corps and AmeriCorps
These two programs allow deferment on students loans while in service. The Peace Corps is a minimum of two years, and AmeriCorps is often a one-year commitment. Not only can you buy time to save up and start your repayment plan, but there’s also a student-loan stipend given at the end of each service. To qualify for the Peace Corps, you must have no debt besides student loans, but anyone can qualify for AmeriCorps.
3. Student loan forgiveness
Some people can qualify for partial or total student loan forgiveness; for example, teachers that work in a low-income or high-need area. Other candidates include nonprofit employees and certain public servants. Check out the full list of avenues for student loan forgiveness on the Student Aid government site. Every little bit helps, and for recent grads these perks might pave the way to a fulfilling career.
4. Income-based repayment
Income-based repayment is based on how much you’re earning. Be careful with these programs, however, because they backfire sometimes. If you’re making minimum wage post-graduation, you’re a great candidate, since the amount of student loan payment is a percentage of income. However, if you land a much better-paying job in the future, you’ll be locked into forking over a percentage of this new income to pay off your loans.
5. Finish school
If you haven’t paid off student loans, but also haven’t graduated, you’re not in a very good position. Having a degree improves your odds of getting a job and often leads to higher-paying positions. Also, as long as a person is in school, student loan payments are automatically deferred. Try different methods of paying for school such as working part-time, applying for numerous scholarships, or accepting a work-study position.
6. Start budgeting
Most people don’t have a good budget they stick to. There are probably ways to trim fat on things like entertainment and travel enough to make your monthly student loan payments. Work with a financial advisor to create a feasible budget that ensures all bills — including those student loans — get paid.
Giving an 18-year-old access to tens and even hundreds of thousands of dollars in student loans probably isn’t a good idea. Unfortunately, many students don’t grasp the reality of their debts until they graduate. Try to limit the loans you take out, but if it’s too late, don’t panic. Start looking at routes for repaying and lowering interest today.
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Um, borrowers in default are not eligible for income-based repayment. While a borrower not in default with a minimum wage job qualifies for a monthly income-based payment of zero, I live on a poverty-level income and have a garnishment of $100 because my student loan is in default, and I am ot eligible for income-based repayment.