Student Loan Payback

The first and biggest liabilities students have to face when leaving college are the extraordinary amounts of student loans. Without a doubt, repayment of these loans is a long and expensive process, especially because most students have taken out not just one loan, but multiple ones and from numerous sources. However, what most students don’t know about are the various student loan forgiveness or repayment programs. These programs help to reduce the amount of student loans, but the trade-off is that students must enter certain careers, join the military, or do volunteer work. With the help of these forgiveness programs, students may reduce either all or a partial amount of their loans.

The problem is that not many students know about them, so these programs have yet to receive the kind of enthusiastic reception they deserve. Here is a run-down of the kind of repayment programs available to students after graduation:

Loan Forgiveness and Repayment Programs

Students need to remember that almost all student loans from the federal government are eligible in these programs. Moreover, federal loans like the Stafford and Perkins are two such loan programs in which the portions of the loans are automatically eliminated when students participate in either of these programs. Repayment programs can be used in the payback of private loans as well. In this program, payments will either be forwarded to you to pay back your private loan or your employer will pay your loans directly.

Is Repayment Taxable?

A lot of students feel apprehensive about the fact that using these loan forgiveness or repayment programs will increase their taxes during the year they received this benefit. While this might be true, the benefits of these programs are nevertheless better than the disadvantage of becoming taxable by the IRS. To help, specify why the loan is being forgiven. To do so, students need to disclose why this provision was made, which could be because of joining a certain profession.

Also remember that repaying student loans through the National Health Services Corps (NHSC) Repayment Program or any program receiving funds from the Public Health Services Act are tax-free.

Pay as You Earn Plan

Currently, many students are taking out loans to fund their college education. The difference between loans and other types of financial aid such as scholarships and grants is that they must be repaid. There are various repayment plans that students can select in order to pay back their educational loans. One of these plans is the Pay As You Earn Plan. Some of the other repayment plans include the Standard Repayment Plan, the Graduated Repayment Plan and the Income Based Repayment (IBR) Plan.

What is the Pay as You Earn Plan?

The Pay as You Earn Plan is designed for students whose loan debt is higher than their income. This plan allows students to keep their monthly student loan payments affordable by offering a very low monthly payment amount. Most students who have taken on direct loans may be able to opt for this repayment plan.

Based on your income and the number of dependents, your payment amount may increase or decrease on an annual basis. Moreover, under the Pay as You Earn Plan, payments are made over a period of 20 years, which is much higher than the Standard Repayment Plan that spans over 10 years. In most cases, monthly payments are lower than they are under other plans.
Eligibility Requirements

Students must have a partial financial hardship to qualify for this type of repayment plan. However, once they do qualify for the Pay as You Earn Plan, they may continue to make payments even if they no longer have any financial hardship. Financial hardship is determined by comparing an applicant’s monthly income and the loan they need to pay off. Direct loans that may be paid off through the Pay as You Earn Plan include Direct Subsidized loans, Direct Unsubsidized loans and Direct PLUS loans.Notably, this repayment plan is not offered on the following loans:

Therefore, while offered on a selected number of loans, the Pay as You Earn Plan may be particularly helpful for students who have many financial responsibilities, as this plan provides some relief to borrowers so that the chances of default are effectively minimized.

Student Loan Relief

Many federal and private organizations specialize in student loan relief to help students navigate their financial constraints and manage loan repayments. A number of programs are available, such as:

  • Consolidation
    Students with multiple loans may have difficulty in managing payments every month. In a consolidation program, multiple loans are brought together to form a single loan which leads to lower payment along with a low interest rate. This helps reduce the hassle of managing so many payments every month.
  • Forgiveness programs
    Under the new bill passed in 2012, students who are eligible can have their debt eliminated completely or partially. Apart from this, the interest rate is also capped to help reduce the risks of fluctuating interest rates that make repayment unaffordable. The federal government also offers loan forgiveness options to students who pursue specific careers such as teaching.
  • Repayment assistance programs
    This is available to families and students having trouble paying off their loans. Under this plan, the repayments are based upon the income level of the student. Interest rates are also lowered to further make repayments affordable and easy to pay.
  • Benefits of Student Loan Relief
    These programs can help a student lower the burden of debt, prevent the risk of default on loans and manage loan repayments in a convenient way. Now students can pursue their academic dreams without having to worry about loan repayments.
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