When you default on your student loans, you end up ruining your credit history. Student loan delinquency can lead to severe consequences when it comes to your future financial prospects.
Immediately you miss a payment date of a federal student loan; it immediately becomes a delinquent after missed due date. If the loan remains unpaid for 270 days, it goes into default. After which, the lender reports the delinquency to the credit bureaus when the student loan is delinquent for 90 days.
No lender will approve loans to defaulters, and if you are lucky to get one, you have to part with premium interest rates. The last thing you want is to find yourself in such a scenario. To avoid student loan delinquency, read through to stay informed on how to prevent it.
How to Prevent Student Loans Default in Advance?
Borrow the Amount You Need
You might be tempted to borrow a higher amount than you need to meet your costs. Unfortunately, you have to pay back the full amount with interest. The more money you borrow, the higher will be your monthly payments; this can be challenging if the income isn’t as high as you expected.
As a result, those high monthly repayments will be intense, posing a high risk of delinquency and default.
Check the Potential Salary of Your Field
Some professions tend to have lower incomes than others. Selecting a low-paying career shouldn’t concern you as long as you have passion. However, it would help if you scaled back according to your income.
Consider choosing a more affordable school instead of going for an expensive school and borrowing huge loans to cater for tuition. Selecting lower tuition fees will enable you to graduate with less debt. Thus, rendering your monthly payments quite affordable and lower the risk of default.
Select an Autopay Option
The autopay option allows the bank to debit your monthly payments from your account and automatically transfer them to various lenders’ accounts. Thus, eliminating any possibility of forgetting about payment or two and end up in loan default unknowingly.
Most lenders give bonuses to individuals who opt for automatic payments by lowering interest rates by 0.25%.
Options for Student Loan Repayment
There are several repayment plans for student loans.
Public Service Loan Forgiveness
Qualifications for a public service loan forgiveness include working for a qualified employer, participating in an income-driven repayment plan, and making 120 on-time payments to the plan.
Income-Driven Repayment Plans
The program is most appropriate if your student loan is higher compared to your income. An income-driven plan allows you to make monthly student loan repayment at an affordable amount based on the income and size of the family.
Even though Income-driven repayment plans allow you to make monthly payments according to your income, it varies on who qualifies, the payment period, and the amount payable every month. You can choose from any form of income-driven plan if you have direct loans only.
Student Loan Consolidation
If you have not defaulted on your student loan yet, but you feel like you want to make a change, act before things get serious. Consolidating student loans can be of help where one has different loans from various lenders.
The consolidation plan groups all your monthly payments in one and makes you eligible for a more flexible repayment plan you might not have been eligible for before.
Direct consolidation loan might as well extend your repayment period, thus reducing your monthly student loan payment and saving you from student loan delinquency.
Student Loan Refinance
Refinancing student loans has become popular due to low interest rates, making it possible for most graduates. The lender pays off the existing loan for a new, more affordable loan in student loan refinancing.
Refinancing your student loan saves you money in the long run. Also, it allows you to take advantage of low-interest rates and switch to a steady fixed rate from a variable interest rate.
Conclusion
If you have a student loan, take time to familiarize yourself with your repayment options. Typically, it would be best if you did this before graduating from school to have the best repayment plan to work with.
Where you select an income-driven plan, ensure you carry out a finance evaluation every year to check if a different repayment plan might be better when it comes to saving cash on interest charges.
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