Though Student Loans Can Be Annoying, Many Assistance Options Exist to Help Pay Them Off

Many Americans have massive amounts of student loans that they still have to pay off, and most may be worried about the ways in which this type of debt can alter what might be a good credit score. However, it’s important to note that even those who have the biggest balances might be able to find some type of relief and get their bills paid down in a responsible, timely manner.

The national amount of student loan debt currently held in the U.S. is hovering around $1 trillion, and that number has exploded in recent years. However, it’s important for recent college graduates carrying these balances to understand their obligations, and what options might be available to them for getting the debts repaid without slipping into delinquency and default. Taking advantage of these options can mean the difference between a healthy credit score and a significantly diminished one for many borrowers, largely because falling behind on payments is the single factor that will most quickly lower credit ratings.

Knowing the difference between private and federal loans

The first thing borrowers may have to do when they’re trying to deal with their student loan debts in a responsible way is to determine whether their loans were issued by the federal government or private lenders, as these lines of credit will necessarily come with extremely different repayment rules. On the most basic level, it’s generally true that those from private entities will come with much harsher rules that have to be adhered to, and these can consequently create more problems for borrowers of them, particularly if they have trouble getting a job right out of school. In addition, these types of financing tend to carry far higher interest rates than those issued by the federal government, which in turn may only add to the financial difficulties borrowers experience in dealing with them.

One thing that might help recent college graduates deal with these private obligations is when their companies, or other organizations, participate in what are known as Loan Repayment Assistance Programs, which are specifically designed to give young debtors help to pay their monthly bills in this way. While the assistance likely won’t be enough to cover the full cost of their student loan payments, every little bit can help more than borrowers might think.

Those with a number of different private student loans might also benefit from consolidating those debts into one balance with the help of another lender. This will likely be beneficial because private student loans’ higher interest rates may be more difficult to bear than those issued by the government, but in many cases, companies that offer debt consolidation loans will allow borrowers to carry interest rates that may be more in line with federal loans. In addition, this step may also lower monthly payments, which in turn can help to ease the problems people experience in meeting their monthly obligations.

Federal loans offer far more options

However, consumers who have been able to obtain federal student loans instead of those from private lenders may be able to find a number of other repayment options that might suit their needs better. The first of these is that they may be able to obtain what are known as “income-based repayment” (IBR) options. Through this payment method, consumers will only be required to pay the amount of their loan obligations that is more than 15 percent of their discretionary income, based on both their salaries and the size of their families. This will typically help keep consumers from slipping into delinquency and default; and once they have been making payments of this type for 25 years, the entirety of their remaining federal loan balances will be forgiven.

Along similar lines, there is also the more recent Pay As You Earn initiative, which works in a similar way but requires that borrowers — whose loans have to have been taken out after October 1, 2007 as well as the same date four years later — prove some sort of financial hardship. This option makes sure repayments are held at an even lower level than IBR: just 10 percent of discretionary income, with forgiveness of still-outstanding debts coming at 20 years, rather than 25.

Federal student loans also come with far lower interest rates and options for deferment or even forbearance for borrowers who have significant financial difficulties soon after graduating. Examining which of these options might be available to them might behoove many struggling recent graduates.

Young adults dealing with massive student loan burdens may also want to keep close tabs on their credit reports, checking for any unfair markings that may appear. If this type of entry is discovered, borrowers may want to contact a credit repair company to have the potential problems put to rights as soon as possible.

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