Money Matters
5:00 am
Tue May 22, 2012

Facing down the specter of student loans




If it's a matter of being able to pay in the short-term, Greg says most lenders will allow you to delay a payment or pay a lower amount, or just the interest, until you get back on your feet. They’ll want to know that you haven’t skipped out, that you truly want to repay your debt.

In some cases, lenders will agree to delay your payments even if you’re in a long-term dry spell. Some will give you 90 days to get back into the payment mode. Opening a dialogue with the lender as soon as possible is critical.

Government loans, according to one estimate, comprise 85 percent of the total. Fortunately, there's some wiggle room on those. Default doesn’t occur until you miss payments for nine months.

There is some great relief on the government side. In one key program, how much you must repay depends on your income.  The program is called Income-Based Repayment, or IBR. 

For example, if you have two or more people in your household and income is $20,000 or less, payments can be deferred. If you make payments for 25 years, the loan remainder will be forgiven. No matter how much you make, loan repayments are capped at 15 percent of your income.

The second government-loan program is Public Service Loan Forgiveness.

After 10 years of making regular payments, the entire remainder can be forgiven. And you can use the other program, Income-based Repayment, to lower your payments over those 10 years. 

The catch? 

You must work in certain job categories. Those categories include government jobs (local and federal), jobs in public schools or colleges, AmeriCorp, the Peace Corps, the military, and emergency services.

Because help in repaying loans from non-government sources is more difficult, try to borrow as much from the feds as possible. Also, interest rates on federal loans tend to be lower than private loans.

Easier terms for private-loan repayment are harder to come by. Again, let the lender know as soon as possible that you're having trouble repaying the loan. Sometimes, paying the interest on the loan will keep the wolf at bay.   

Another tip:  consolidate all of your federal loans and set repayment over the longest period, such as 25 years. 

If you are entirely unable to make any payments on a loan, your credit rating can be reduced. Use of any charge cards likely will be prohibited. Wages could be garnished.

Under normal circumstances, what you owe can be discharged by entering bankruptcy. But there are two exceptions: child-support payments and student loans. So don't assume you can ditch you student loan by declaring bankruptcy.

You can learn more about student loans at