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There is no doubt that America has a massive student loan problem, as over 44 million Americans owe a U.S student loan debt of over $1.56 trillion. When I started Ascend Finance, I did not realize just how big the issue actually was.
The main source of this problem due to the lack of financial knowledge among students in colleges. In a survey conducted by Student Loan Hero, they found out that 10% of students in colleges think that they don’t need to pay their student loan debt even if they can’t find a job, while 50% of survey respondents don’t know that interest accrues on their federal unsubsidized loans while studying. There are definitely ways to manage your debt, but it can be difficult when you have so many different types of debt.
The sheer lack of knowledge displayed by the respondent shows the main cause of student loan hardship in students. We tried to attack this issue by building a Chapter 7 means test calculator and a Chapter 13 repayment plan calculator to help folks understand bankruptcy when facing hardship, but a key issue is that student loans are often not discharged in bankruptcy. Many people we help have student loans exceeding $100,000, not to mention the other debt they have.
In this article, we’ll cover all these basics you should know about student loan hardships and the solution that can help. When you make use of our solutions, you’ll be more informed and equipped in deciding the option that best suits you. And it’ll open your eyes to the opportunities that abound.
What are student loans?
Going to college is a pretty expensive endeavor, and the cost of going there keeps rising daily. The ultimate aim of creating a student loan is to assist students that cannot provide room, tuition fees, and books for themselves.
However, student loans can be classified into three different types which are:
1) Federal Student Loans
A federal student loan is a loan given by the federal government for students to purchase academic materials and pay for necessary fees. It is the government that determines the amount and interest rate. Students that want to apply for a federal student loan should obtain a FAFSA form. The normal repayment plan for a student loan is within 10 years. If you want to have an idea of what your monthly payment will be, then you should use the US Department of Education’s calculator. If gotten, federal student loans provide more relief than private student loans.
Unsubsidized vs. Subsidized Federal Loans
You can further separate federal loans into two distinct types, they are: unsubsidized or subsidized. The government gives subsidized federal loans for financial reasons, while it gives unsubsidized federal loans to the government for settling additional college expenses. It is essential to understand this distinction because it will determine your interest rate and your repayment plan.
2) Federal Parent Loans
Although you may be confused at first, these types of loans are exactly as their name depicts. The federal parent loan is also called PLUS loan, and they are loans given to parents of dependent students. Parents who want this loan have to apply for them, this type of loan has an interest rate that is fixed at 7.9%
3) Private Student Loans
Private student loans are quite easy to get and pretty straightforward. This is loans given by credit unions or banks for the education of college and graduate students. These loans ain’t connected in any way to the college or the federal government, they’re simply a deal between the credit union or bank and the individual getting the loan,
Each of these loan types has a different repayment plan. However, what most people are clueless about is the consequence of not keeping to the repayment plan.
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Student Loan Hardship
This is a technical term given to a situation where the debtor is behind on fulfilling his/her debt obligation to the creditor. There are lots of consequences for not paying your debts as planned. There will be a default on a student loan if you don’t make payments on the loan within 270 days. In a situation where this happens, then the consequence is that you won’t be able to apply for another student loan and may face the law.
However, you may apply for some debt relief if you’re facing a lot of hardship. Here are the steps to take if you find yourself in a situation where you’re unable to meet up with payments.
Contact Lender
The very first step that you should take is to contact your lender and explain the situation of things to them. Your lender will in turn give you the options at your disposal.
Find a short term solution
You may find it challenging to make enough money for your payment after college. As such, you should find a short term solution to your problem. Here are some solutions that help.
1) Deferment
When you defer a loan, a stop is temporarily placed on your loan payments for a specific period—this can be as much as five years. You can only defer a subsidized loan. And within this period, you won’t be asked to pay interest that would normally have accrued on the loan. Some acceptable reasons for deferment are disability, medical reasons, childbirth, and unemployment.
2) Forbearance
This is pretty similar to deferment, except that it only applies to individuals that have unsubsidized loans. It means that you’ll still be responsible for paying any interest that accrues during this period. Read here to acquaint yourself with more knowledge about forbearance and deferment.
Find a long term solution
A longer term solution may be 1) Income Driven Repayment Plan (IBR), 2) Student Loan Forgiveness and 3) Filing for bankruptcy. Although bankruptcy may not wipe out any student loan debt, it may help resolve other debt to payoff your student loan debt 4) A debt payoff app that can help prioritize debts to eliminate debts one by one. 5) Setting debt. Just be wary about debt settlement companies. Look for sources and reviews (ex: National Debt Relief reddit) that can give you different opinions to help you choose whether this is actually a reasonable option.
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Conclusion:
Student loan hardship is a realization for many American that are suffering due to COVID and having debt that is too much to afford. You have options to get out of debt, so you should explore as many options as you can to get relief.
The post What You Should Know about Student Loan Hardship in 2020 appeared first on The Fashionable Housewife.