Stafford loan Default Avoidance
It is very easy for student loan borrowers to experience difficulties managing repayment obligations. There are, however, many resources and tools that can help you make sensible borrowing decisions or overcome problems you may be experiencing. Here's some advice:
Before You Borrow
- Make sure you really need the loan you are considering. Could you meet the expenses by working extra hours or from another source?
- Think about the "big picture" effects of your borrowing. How much will you have to borrow in order to graduate (your school's financial aid or admissions office should help with averages)? Calculate the monthly payment for these loans.
- Consider how much do you intend to earn once you enter the work force? Your student loan payments should be less than 15% of your salary. Be Realistic!
Managing Existing Obligations
- If you're having trouble meeting your student loan payments, contact your loan servicer. You may qualify for a deferment, forbearance, or repayment alternative that is more affordable.
- Consolidation can help by extending your loan's repayment term beyond the standard ten years. While this will increase the total interest charges, the monthly payments will become more manageable.
- Watch your expenses! Just as you need to be cautious when you're in school, you need to be aware of your expenses after you leave school.
- Limit student credit card usage to absolute necessities. Remember you'll pay more for every charged item because of the credit card's finance charges.
- If you must have credit cards, shop around for low interest rates or call existing credit card providers and ask them for a lower rate.
Options if You're in Default
There are a few options for borrowers to rectify their defaulted federal loans. Here are some ways to get your loans out of default and get your credit back on track:
- Repay your loan in full — This may not be an option for everyone, as borrowers can often owe much more than they can afford at any one time. However, if possible, paying off the loan is the best way to get out of default.
- Rehabilitate your loan — Loan rehabilitation can help to restore your loan benefits as well as your credit. To go through this process, you must contact your lender and agree upon a reasonable payment plan.
- Consolidate your loan — Loan consolidation is also a good way to get out of default. By consolidating, you will be closing your old defualted lines of credit, and replacing them with the new Direct Consolidation Loan.