Investigating Renegotiating Student Loans
Have you been falling behind on your student loan payments and worried that the Department of Education will take your tax refund, garnish your wages or sue you? Bankruptcy will not eliminate your student loans, as a result of recent changes in the law. But understading about your choices and taking action can defuse the specific situation before any damage is done to your credit ratings or bank account.
Your first concern really should be in being sure that your loan isn’t in what’s called “default,” usually thought as not making a payment or attempting to renegotiate payments for the past 180 days. If you are in default, your lender is often rather unlikely to renegotiate your loan. However you can ask your lender to ascertain a “reasonable” repayment schedule, according to info you supply for example monthly income, other debts, dependents and the like. Once you have made payments as agreed for 6 months, you might then be entitled to new loan.
Deferment of Loans
If you ever aren’t in default, you might possibly get your student loans “deferred,” which translates to mean repayment is going to be delayed if you:
- Are permanently or temporarily totally disabled
- Are completely unemployed
- Have a federal loan and can prove that you are suffering an economic hardship (as defined by the lender)
- Are enrolled in school
- Are in the military fulltime
- Are providing medical care in a poor area or to the needy
You’ll want to fill in paperwork from the lender and follow through to make sure it’s processed correctly. With some loans, the interest for the loan will continue to build.
Forbearance
If you don’t qualify for a deferment, you might be able to postpone your student loan payments during a specific time period through what’s called “forbearance.” It’s easier to acquire a forbearancethan a deferment, but you’ll carry on and rack up interest even throughout the forbearance period.
Canceling Your Loan
You could possibly request that your lender cancel your student loan entirely if you:
- Are permanently or temporarily totally disabled
- Are in the military fulltime
- Are teaching in a poor area or to needy students
- Are providing medical care in a poor area or to the needy
- Are providing certain types of community service, such as serving in the Peace Corps
- Are working in law enforcement, with certain loans
- Withdrew from school or the school closed before you could complete your degree and you did not receive a refund
Renegotiating or Refinancing
When you aren’t in default, and do not qualify for deferment, forbearance or cancellation, you’ll probably still have the ability to renegotiate a new repayment plan that’s doable with your current financial circumstances. Should you extend the time for repaying your loan, you’ll end up paying more interest. Forms of repayment plans include:
- Graduated repayment, with payments that start out lower and increase every few years. If you expect increases in income over time, this makes sense.
- Extended repayment, with a fixed monthly amount that goes longer than the period of your current loan (some as long as 30 years)
- “Income-sensitive repayment,” which fluctuates with your income (usually measured annually)
Consolidation
You just might consolidate all your student loans together at a renegotiated rate. You’ll likely find yourself paying more interest if your loan period is extended, but it’s possible you’ll get a lower interest rate to balance it out. Most consolidation lenders won’t consolidate student loans that total less than $7,500.
If you go with a consolidation loan, you will want to be sure you can accelerate payments with no penalty, in case your financial situation improves over time.
If you are having problems making your student loan payments, it’s most important to act quickly, before you are in default and you’ve damaged your credit history. The sooner you keep yourself well-informed on your options and take action, the better.
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