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Kristi Reyes was ecstatic that she had finally fulfilled all of the academic requirements to receive an education degree. With her career aspiration of gaining a teaching position assured, Kristi said she put her student loan obligations on the back burner.
That is, until she received her first student loan repayment statement.
“I completely ignored the financial responsibility I had to pay back my student loans,” said the 38-year old middle school teacher. “I had to scramble to find a way to make the payments, without sacrificing cash for living expenses.”
Even if a student loan puts you on the brink of bankruptcy, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 prohibits you from discharging student loan debt. However, former students have several repayment options that allow them a little financial wriggle room
School issued student loans offer more repayment options, while student loans approved by private lenders limit your payment choices. The following types of student loan payments involve mostly federal government issued student loans.
Graduated Repayment Plan
Graduated repayment plans differ from standard student loan repayment plans in one significant way: You send less money now and make up the difference by sending more money later. Graduated repayment plans operate on the principle that you will earn more money as you move through your career. Kristi opted for this type of plan to compensate for her below average starting teacher salary. As she gained experienced and earned tenure, Kristi made more money to “catch up on my student loans.” Remember that like standard student loan repayment plans, graduated repayment plans require you to pay off a student loan within 10 years.
Income Calculated Repayment Plan
As a variation of a graduated student loan repayment plan, an income calculated repayment plan matches your income with a repayment amount you can afford. While a graduated repayment plan assumes you will earn more money down the road, an income calculated repayment plan allows you to adjust student loan payments, as your incomes increases or decreases. Your annual income determines your monthly student loan payments. Married student loan borrowers must calculate joint income to determine the monthly student loan payment. Borrowers that earn income that falls below the federally mandated minimum income threshold might be eligible to defer payments for limited amount of time. If you have not paid off a student loan using the income calculated repayment plan method, the federal government will excuse you from paying the remaining balance on your student loan after 25 years.
Student Loan Refinancing and Consolidation
Consolidating multiple student loans work well for borrowers who want to lower monthly payments by increasing the length of a student loan. However, increasing the length of a student loan can increase the interest you owe over the life of the loan. Some borrowers should see slight decreases in interest payments. Therefore, student loan consolidation is a strategy to check into to lower your monthly student loan obligations.
Here are the primary reasons to consolidate student loans:
- Lower interest rates offered by other lenders
- You have defaulted on your student loans
- Current monthly payments too high for your income to support
Student loan debt can trigger severe personal finance issues, unless you devise the best way to repay your student loan. As you grapple with finding a way to repay your student loan, chances are you are too distracted to learn about changes in federal student loan laws. We educate our clients on rapidly changing federal student loan laws to help them make the right repayment decisions.
To learn more about repaying your student loan, contact our California law office today to schedule a free initial consultation.