Payment Options to Avoid Defaulting On Student Loans

Last Updated on May 25, 2023

Colleges and universities all across the nation are in full swing as another academic year has begun. To the chagrin of both students and their parents, the cost of a college education has skyrocketed in the last five years. In August of this year, the New York Federal Reserve released its Quarterly Report on Household Debt and Credit. According to the report, “Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion.”

High Unemployment Adds to Student Loan Delinquency

The steep rise in tuition and other costs associated with attending college has made it necessary for more students in college and those planning to attend college to obtain loans to finance their education. Unfortunately, many students who have completed their college education, or those who have dropped out of college before completing their degree requirements are finding it difficult to find the type of employment that will allow them to pay back the loans. Far to many, if they are working at all, are underemployed. The national economy continues to reflect a stagnant job market. This sour job market has caused many former students to fall back on their loan payments. In some cases no payment has been made since the student left college. Recent statistics from the Federal government indicate that one in every six borrowers are in default.

Debt Collectors Cashing In on Student Loans

The nation was warned by economists and financial experts back in 2008 that the next imploding financial crisis in the country would be the student loan programs – now estimated to be at $76 billion in defaults. In order to avoid a repeat of the 2008 financial crisis the Federal government has moved quickly in an attempt to collect monies from students who have defaulted. The Feds have hired private collection agencies to go after student loan defaulters. To be sure, the collection agencies have been given powers by the Federal government that they themselves don't have in collecting private credit debt. Most borrowers will not want to get caught up in the debt collection circus that some collection agencies create when attempting to collect payments.

Federal Student Aid Offers Loan Repayment Options

To it's infinite wisdom, the Federal government has created a program which allows borrowers to pay back their loans under circumstances best suited to their current economic condition. The program is called the Income-Based Repayment Plan (IBR). The IBR allows borrowers to pay 15 percent of their discretionary income for up to 25 years. Whatever amount of money that is still owed after 25 years is forgiven.

• Loans eligible for IBR – All Stafford, Grad PLUS, and Consolidation Loans made under either the Direct Loan or Federal Family Education Loan programs are eligible to be included in the program.
• Loans NOT eligible for IBR – Non-federal loans, loans currently in default, and Parent PLUS Loans are not eligible for the income-based repayment plan.

Applying for the Income-Based Repayment Plan

To discuss and apply to be a part of an IBR program, please contact your loan servicer to determine your eligibility for IBR. You can also use the Income-Based Repayment Calculator (http://studentaid.ed.gov/repay-loans/understand/plans/income-based/calculator) to see if you qualify, and get an estimate of what your payment could be. For more information visit www.studentaid.ed.gov or call 1-800-4-FED-AID.