Avoid Garnishment With Student Loan Repayment Options, Part Two

Earlier this week, we began a discussion of the many options available for repayment of federal student loans. Although federal loan repayment is generally highly flexible, the consequences of taking no action can be harsh. Wages and federal tax returns can be the subject of garnishment by loan providers, and credit scores will suffer. Because student loans cannot be dismissed through Chapter 7 or Chapter 13 bankruptcy, it is up to the student to find a way to make their payments.

The first step in finding the best repayment plan is to determine the options. Borrowers should speak with their school’s financial aid office as well as their student loan provider to get a clear picture of what is due and to whom it is owed. Then students should examine their current financial situation, anticipating any changes in the near future, and decide on a plan of action.

Standard student loan repayment is for a term of 10 years. Although monthly payments may be higher than some of the other extended options, the borrower will pay less interest, and therefore less overall in the long run. The graduated repayment plan is also a 10-year plan, but will allow borrowers to pay less initially with payments increasing every two years. Students will end up paying more with this plan, as interest will pile up during the early years of repayment.

The extended repayment plan is only available to students with an aggregate of $30,000 or more in student loan debt. It allows borrowers to pay back their loans over a 25-year term, with lower payments. However, interest will accrue during the entire repayment period, and students will end up paying more in the long run.

Income-based repayment is a federal program allows borrowers with low incomes to pay less based on the amount they take home each month. Students should check with their loan provider to see if they qualify.

With so many options, recent college graduates should be able to enjoy their successes instead of stressing about loan repayment. Despite the economy, there are plenty of ways for graduates to make ends meet.

Source: Reflector, “Let student loan games begin“, Bill Pratt, 26 December 2010