Students who took out federal loans to fund their education enjoy several exclusive privileges that are otherwise absent in private loans. For instance, federal student loans come with a predetermined interest rate and provide debtor safety. Moreover, these loans also have the provisions to grant deferment and forbearance, in case a student defaults on loan payment due to sudden financial crisis. However, it should be noted that students with Parent Plus loans or Perkins Loan cannot opt for the debt consolidation programs sponsored by the government, which are meant for other federal student loans.
For that reason, the government has developed a slew of debt relief programs that can help a student debtor to pay off his/her debt easily.
Students should be aware of the student loan repayment procedures that will help them to build their finances on a firm ground. Some of the debt payment plans have been discussed below:
- Fixed-interest rate payment plan – This is also known as ‘Standard Repayment’ plan. Under this plan, monthly payment amount payable by the student borrowers are preset. The monthly loan payment amount will be of $50 minimum. Moreover, the loan repayment term will be of maximum 10 years. People who can manage high monthly payment amount will find this plan most suitable for themselves.
- Adjustable-interest rate payment plan – This kind of student loan repayment plan is formally referred to as ‘Income-Contingent Repayment’ or ICR plan. As per the plan’s rule, a married student’s earnings (also considering spousal income), strength of the immediate family, followed by the sum total of all the direct loans will be taken into consideration to decide whether or not a student is eligible for the program. However, borrowers are immune from proving their financial instability to be eligible for this repayment plan. Payments are decided annually, after the analysis of a student’s financial health. This program is of maximum 25 years and hence one will be paying extra over this long repayment period. It is good to note that after 25 years of loan payments, the left-over loan balance will be forgiven.
- Financial hardship payment plan – The official name of this plan is ‘Income-Based Repayment’ or IBR plan. Students who have fallen into financial turmoil for the time being can take advantage of this plan. Under the IBR plan, students are allowed to make reduced payments over a greater duration that stretches up to a maximum period of 25 years. Those students, who make regular approved payments for 25 years, will have their remaining loan balance waived-off by the government.
To be eligible for this plan, a student’s gross earnings, family strength and financial status (or poverty line) are evaluated to derive his/her disposable income. Therefore, a student’s outstanding balance under the standard repayment plan should be 15% higher than derived disposable income.
Finally, it should be noted that IBR and ICR are granted to borrowers of both Parent Direct Plus loan as well as Direct Plus Loan. On the other hand, ‘Standard Repayment’ plan is granted to only Parent Direct Plus loan borrowers.
This is a guest post by Kevin Craig who is a financial writer for various finance related communities. He has helped lot of debt burdened people with free counselling on debt consolidation as well as debt settlement programs. With his advice many are now living a debt free life. You can reach him at: kevin.craig672(at)gmail(dot)