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What If You Get Behind Paying Student Loans
from: Kyle BesserIf you have student loans and find yourself in circumstances where you are having trouble paying your bills, getting behind on your student loans can have dire consequences. Letting payments on your student loans slide even a little is not a smart choice. With only one missed payment, you are considered delinquent. You will be charged late fees to get back on track, and your nonpayment will lower your credit rating, which will make it harder to finance a home or a car in the future.
If you default on a student loan, which officially happens after nine months of missed payments, the consequences are even more dire. Your loan may be turned over to a collection agency, which will charge you extravagantly for its efforts. You could be taken to court. The government could start deducting loan payments from your paycheck; up to 10% of your income can be garnished. You won't receive your income tax refund. You will not be eligible for any more federal financial aid, including student loans for your children.
If you have already defaulted, seek the advice of your lender to get back on track as soon as possible. If you are still struggling to make student loan payments and adjusting your repayment plan hasn't helped, keep yourself out of default by using these options:
Deferment
With a deferment, you get a temporary reprieve from your loan repayment, usually for no more than three years. If your federal loans are subsidized, the government will take care of the interest during the deferment; but if you have unsubsidized loans, you'll be responsible for the interest that accrues even while you are not making payments.
A deferment is available to borrowers for various reasons. You may qualify for deferment if:
*You return to school.
*You go on maternity leave
*You work as a teacher.
*You are a Peace Corps Volunteer.
*You are an AmeriCorps member.
*You are doing an internship or residency.
*Your monthly loan payments are greater than 20% of your gross monthly income.
*You just haven't been able to get a job or are otherwise experiencing financial hardship.
To see whether you may qualify for a deferment on your federal education loan and to download a deferment form, visit the Federal Student Aid web site or contact your loan institution about their deferment procedures. Qualifying for a deferment doesn't mean you will automatically get one. You need to formally request a deferment and wait for your application to be processed and approved before you stop making your monthly payments.
Forbearance
Forbearance is available to borrowers who don't qualify for deferment but who still need a reprieve from loan payments. Forbearance is similar to a deferement, but there are a few differences. When you have a forbearance on your loan, you are still responsible for interest, whether you loan is subsidized or not. Your forbearance period lasts only a year or less, but it can be renewed for up to three years.
As with deferment, you must apply for forbearance, and you should continue your payments until you have received official approval.
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