Jan 14 2014
What Should You Do If You Can’t Pay Your Student Loans Back?
You may have already heard of Deferment or Forbearance Plans. You don’t want to mess with those. The long and short of it is they are temporary solutions that may make your situation worse by accruing or increasing interest.
What you want to ask your lender for is something called an “Income Based Repayment” plan, or an “IBR.” It’s exactly what it says it is. Your lender will take a look at your income, your last tax return, and give you a payment fee schedule that makes sense for your life. For example, say you have a $425 per month payment on a 10-year payment schedule. They can get that down to $33 a month, and there’s usually a 25-year window with an IBR. But you have to ask for it; they won’t offer it to you. You’ll never see it as an option on their websites.
You can hire a company to manage your debt for you, for a fee that is usually based on what you owe. One such that I trust implicitly is called IBR Plan, IBRPlan.com.
You can also find online tools to help you manage your student loan debt yourself. For a low subscription fee, you can download very effective software that will help you organize your debt and figure out what payment makes sense for you, as well as give you other tools to help you talk to your lender about an IBR plan for you. Manage.IBRplan.com is a great resources.
Does The Government Have Programs To Help Pay Off Student Loans?
There are government programs for Loan Forgiveness. Go to StudentAid.edu.gov to learn about those programs.
There are also programs to consolidate student loans on the federal side. Private student loans have to be negotiated differently. The federal program for consolidating a variety of federal loans is Colby Allen B Ford direct loan program. Of course there are private companies that can help you consolidate, where the aggregate loans you have are combined with a simple payment plan that is usually settled upon with a financial counselor for a nominal fee.
What’s The Best Way To Save For College In Order To Avoid Student Loans In The First Place?
An ounce of prevention is worth a pound of cure. You can certainly put aside money per month into a traditional savings account, but there are several programs that help parents save for college that will help make your money grow.
The 529 plan is the traditional savings plan for college. The money grows tax-free and can only be used for college expenses. 529 plan is not deductible on your tax return. Also, you may find that you’ve been using a 529 plan only to find that your student doesn’t want to go to college after all. 529 saving plans can be transferred to another family member, but you cannot use that money for any other purpose.
There is no right choice, because no one has a crystal ball. If you had a student going to school in 2007 when the market went down that had a very adverse effect on your 529 plan. It had no effect on people who were saving within whole life policies. It’s just a different strategy. 529 plans also may have an adverse affect on a student’s application for financial aid as is considered an asset.
That’s why some parents are looking to very aggressive 10 and 20-year whole life policies for the same purpose. The 529 plans ride with the market. The whole life policies have guaranteed returns. The use of the money is much less restrictive with a whole life policy.