Debt Consolidation

The Facts About Debt

UWSA College Finance Series: Post-College Debt Management

Filed under: Debt
Tags: — Written by: Simos
July 16, 2010
Is he thinking ahead to years of debt?

Is he thinking ahead to years of debt?
Photo by: Harrison Keely (Stock Exchange)

Last time on UWSA we described the basic categories of college financial aid and how each one relates to a student’s financial future.

Now, we’ll zoom ahead a few years to discuss what happens after graduation, when both federal and private student loans fall due.

In today’s job market, a salary that can pay substantial student debts along with living costs within a short time of graduation simply isn’t guaranteed.

Knowing the ins and outs of repayment in advance can make debt management much easier.

Grace Periods, Forbearance, Deferments, and Forgiveness: What to Know

Depending on the type of loans you have, different payment plans will be available, and different criteria will be in place for grace periods, deferments, and loan forgiveness. The grace period is a time following graduation during which no payments are required and no interest accrues. For federal aid, grace periods are quite long, amounting to six months or more. Private loans vary, and may have no grace period at all.

Deferments are periods when no payments must be made, but during which interest continues to accrue. Deferments may be claimed or extended for various reasons, discussed below. Many private loans only permit deferment in cases where the student is continuing his or her studies at the graduate level and is enrolled with a full class load. However, federal loan deferments are much more flexible and there are more options.

Federal loan deferments generally last for 12 months and may be renewed or extended, either on the same basis, or based on new circumstances that also qualify. Loan forbearance is deferment in which the payee is willing, but not able to pay under the loan’s terms due to temporary financial hardship, and has similar implications.

Loan forgiveness is also sometimes possible in the case of government financial aid. Some federal workplaces allow for loan forgiveness after several years of service. There are also employers in the private sphere who may offer programs to help young employees defray the costs of their loans on the long term. In most other cases, loan forgiveness is only possible for students who die or become totally disabled.

Your Loan Deferment Options and What They Mean

Long-term loan deferment is not an answer to the problem of student debt; interest continues to accrue and larger payments will have to be made eventually. However, with an uncertain job market and economy, it’s only reasonable to know which deferments you qualify for. Here are some of the most typical ones. For information on all deferments, including complete eligibility criteria, visit Federal Direct Loan Servicing Online, the centralized resource for federal loans and repayment.

Armed Forces: Personnel who are actively serving in the U.S. military and who have agreed to serve for at least one year may qualify for deferment. National Guard service may also qualify one for deferment during a defined emergency.

Unemployment: Individuals seeking, but unable to find 30+ hours of work per week, and who expect this to go on at least three months, may qualify for a deferment for the duration of their unemployment if they continue to seek work.

Graduate Study: Students who are involved in continuing graduate-level education on at least a half-time basis usually qualify for a deferment for the duration of their program.

Tax Exempt Organization: Individuals working for a charitable nonprofit, directly engaged in service within the community that addresses the problems of poverty, may qualify for a deferment if making less than minimum wage.

Teacher Shortage Area: Qualified teachers who are working full time in a region, grade, or subject defined by the Department of Education as suffering a workforce shortage may qualify for a deferment.

Working Mother: Mothers of children who have not yet entered the first grade, and who do not earn more than $1 above federal minimum wage (currently set at $7.25 an hour) may qualify for a deferment.

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