For many students the student loan repayment process can be overwhelming for a variety of reasons. The process is confusing. The amount can be alarming and information is not easily available. As we discussed earlier, starting point needs to be an inventory of loans. Consolidation needs to be considered and is highly recommended.
Separating the private loans and federal loans is critical since these types of loans will have different repayment options available. There are seven different methods available under the federal loan process. On the private side there is really only one which is based on time. Visit EFC PLUS to get more detailed information on each method.
The next part of this process is to determine what your loan repayment budget can be per month. If you have private loans you are limited in your option. Remember by extending the time you increase the amount of interest you will pay over the life of the loan. Again this is where the flexibility in the federal loan option may help you stay within a budget.
The advantages of these different payment methods should help you avoid default. You cannot default on your student loans since the penalties are severe. If you decide to default, the penalty normally is not felt immediately. The pain will be felt when you want to buy a car, a home or get a credit card. A student loan default will normally not allow you to get additional credit. Student loan debt is not forgiven under the bankruptcy.
Knowing the rules of loan forgiveness can save you a significant amount of money over the life of the loan. If you work for a government agency or in the non-profit company, loan forgiveness should be considered in your loan repayment decision.
For married couples understanding your tax filing status and tax exposure needs to be part of your decision process. If you are planning to get married, you need to have an open discussion about your student loan position.
As we had stated in previous blogs this process is extremely complicated. Knowing the relationships of debt ownership, income sources, taxes, and loan forgiveness make it one of the most confusing financial decisions you will make in your lifetime.