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What To Do When It's Time to Repay Your College Loan

Updated on August 30, 2012

Defaults Are Increasing On Student Loan Debt

There is an increasing number of student loan debt that are going into default. In government data, Federal student loans are not being repaid due, presumably to the recession, and most of these loans are for students attending for profit colleges. The Federal government is looking to impose regulations on for profit colleges and universities. These regulations would halt federal assistance to these programs if is statistically shown that too many loans are going into default from these institutions. Those students who went to a for profit college make up 26% of the federal loans and make up 43% of those who defaulted on their federal loans in 2008-2009.

The United States Dept. of Education calculated that 7% of federal student loans have defaulted within 2 years of the student loan debt repayment requirement on loans due from October 1, 2007 to September 30, 2008, and defaulted on their loans before September 30, 2009 . This is an increase of 6.7% from the previous year and 5.2% from the year prior. The increased rate of borrowing to pay the high cost of college, coupled with a tough economy is making it very hard for students to pay back the loans.

Over 60% of college students borrow money to pay for their education. July 1, 2010 brought some changes to these student loan debt. Here is a brief explanation to help you understand these reforms:

  • The Direct Loan Program is now the only agency that issues federal loans to students. It used to be that financial institutions like banks could offer federal loans for students through the Federal Family Education Loan Program. The Health Care Reform Act changed this by ending subsidies for those institutions who loaned the money.
  • Financial institutions can still offer private college loans. Some of these loans have become more competitively priced and are available at a lower interest rate.
  • Direct Loan Program is also the only agency handling the PLUS loans (Parent Loan for Undergraduate Students). The interest for Direct PLUS loans is 7.9% PLUS loans can be used to pay for costs of college not covered by financial aid or Stafford loans. Add in a 4% loan fee. Students in graduate programs can also borrow through the PLUS loans.
  • Subsidized Stafford loans (available to low income borrowers) dropped from 5.6% to 4.5%. These rates are available on new loans until June 30, 2011. Unsubsidized Stafford loans (available to every one regardless of economic need) has stayed the same 6.8%.
  • Origination fees have been lowered from 1.5% to 1% for Direct Stafford subsidized and non subsidized student loans.

student loan debt can be overwhelming

Student Loan Choices

Looking for a college loan is an education in of itself.
  • Federal loans are the cheapest form of student  loans. The government pays the interest rates while the student is in school and an additional 6 months afterwards. To apply for a loan with government assistance fill out FAFSA form, which is a free federal application for a student loan. Families with an annual income of up to $80,000 may get a subsidy. Apply for these Stafford loans first.
  • PLUS student loans have gotten harder to get since the recession. Parents do not qualify for the loan, If a parent qualifies, they can borrow the sufficient amount of money. Parents can borrow the entire remaining cost of higher education, as long as their credit checks out favorably. if they went through a bankruptcy of foreclosure within the past 5 years, have been delinquient on any debt for more than 90 days. With a co-signer, the parent might qualify.  
  • In addition, see what your state has available for college assistance, since the federal loans are not large enough to cover all college costs.  There are 17 states to help students by lending money for the college they are attending there.  Interest rates are fixed from about 6% to 8.19%.   Variable interest rates can range from 1.78% to 3.8%.  Loan fees can range from 0% to 5%.  States usually want a co-signer on the loan. The variable rates may not have a cap, so be aware of what direction the interest rates are going. Sometimes state loans start having to be repaid while the student is in school.
  • Federal and state student loans are preferable to bank loans.
  • Loans from banks and private lending institutions are not all the same. There is a big range of rates, and you need to investigate the choices you have. Your decision could save or cost you thousands of dollars, so it is worth educating yourself before ou sign on the dotted line. To compare rates, apply to several lenders. Your credit rating will not be affected by multiple applications, as lon as they are all maed with a 30 day time period. Shop around, and inquire at the schools where you are applying. Colleges often have a list of lenders.  Compare rates, terms, and origination fees, so you know the total cost of the loan.

Time to Repay the Loan... What To Do

Oh Oh... Now it is time to repay the student loan debt.  If paying back your college loan starts to become difficult to impossible, communicate with the lender immediately.  You may just get a deferment, or a delay in repayment relief for the student loan debt.  Contacting the lender immediatly may also avoid late fees and other difficulties that could arise from not taking responsiblity promptly.  For federal loans, contact your school, or loan officer. If you don’t know who to contact look at the U.S. Dept of Education’s National Student Loan Data System.  If you have a PLUS loan, you will probably still be charged interest during the deferment for your student loan debt.

Effective July 1, 2010, changes were made to the repayment program for graduates who can’t afford to make their student loan debt.  It is an income based program that lets students who borrowed from the federal government to have their loan payments lowered based on their income and family size. Loans being paid back woul be less than 10% or more of their annual income.  People who are married will not suffer penalties. It used to be that couples who file a joint tax return had a higher minimum combined loan payment than unmarried borrowers. A new calculation takes into consideration the combined income and debt to figure the minimum payment due. For borrowers who have already gotten deferred payments, the repayment is calculated on the balance of the student  loan debt when it went into repayment, or the current loan amount, whichever is higher. Borrowers would be able to hold off making payments, but if there is interest that accrues, the loan balance will be bigger.

The latest info on student loan debt

Settle Your Student Loan Debt - Be Proactive

College is a worthwhile investment in yourself.  It is expensive, but overtime you will be rewarded with a higher paying, more fulfilling career.Almost everyone has student loand debt when they finish college, their grad program, and law and medical school, and other post graduate degrees.  In today’s time, it may even seem like a gamble because you have large loans, and not so much of an income. Look at the bigger picture and know that you will get out from under your student loan debt. Perservere to get  a job in the field of your desire. Work hard and endure the initial hardships, it will pay off for you, sooner than you think.  If you do have trouble making your paying back your student loan debt,  take a proactive approach to straighten it  out with your lender. There are agencies, the government and people who want to help industrious young people who embody the future of our society.   


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    • dearabbysmom profile image

      dearabbysmom 6 years ago from Indiana

      As our 3rd child is getting ready to begin college, one thing I would definitely change is to never get a private loan. As you said, the interest on government loans is always lower, and they are very good to work with you if you need to lower payments. If you are honestly trying to make the payments, they are so happy that they are glad to work with you.

    • dallas93444 profile image

      Dallas W Thompson 7 years ago from Bakersfield, CA

      Wow. Glad I have completed my studies and do not need a student loan! Thanks for sharing. Flag up!

    • Simone Smith profile image

      Simone Haruko Smith 7 years ago from San Francisco

      Gosh, it's horrifying to think that 7% of federal student loans have defaulted within 2 years of the student loan debt repayment requirement - I'm so glad you've taken the time to discuss this issue and offer some alternatives.