Paying up: You can handle student loans if you make an effort

If your student loans loom large now, just try ignoring them. They'll get much, much bigger.
Once your loans go into default, your lender would probably turn your account over to a collection agency. The agency's fees would be added to the balance, increasing the amount you owe. The government also might withhold your tax refund and garnish some of your wages.
And there's no statute of limitations on the government's authority to pursue unpaid student loans, said Deanne Loonin, staff attorney for the National Consumer Law Center. "That means these debts can follow you your whole life."

The encouraging news is that these consequences are avoidable. The federal loan program offers numerous alternatives for borrowers who can't afford their monthly payments. To take advantage of them, you need to contact your lender as soon as you run into trouble.
You're required to start making payments on your student loans at the end of your grace period, typically six months after you graduate or leave school.

Payment options

If you can't afford the monthly payments under the standard plan, talk to your lender about other repayment programs. The most common are:
• Extended repayment. That will lengthen the term of your loan to up to 25 years. Your payments will be lower, but you'll pay more in interest. There's no penalty, though, for paying off your loans early, so you can always increase your payments.
• Graduated repayment. This plan lets you make interest-only payments for up to four years. After that, your payments will rise gradually so your loan will be repaid in 10 years.
• Income-sensitive repayment. Your monthly payment will be based on your income and the amount you owe. Borrowers must apply annually for this option. Your payments must be large enough to cover the interest on your loan. This plan is most appropriate for borrowers who expect their income to increase - or their expenses to decline - in the next few years.
• Loan consolidation. This is worth considering if you have several federal loans. You can combine them into a single loan and extend the term for up to 30 years.

If you can't pay

If you can't afford your loan payments, there are alternatives:
• Loan deferment. Borrowers who return to college, are unemployed or are suffering economic hardship may defer repaying their loans for up to three years.
• Forbearance. This also lets borrowers temporarily stop payments or pay a reduced amount. Forbearance is granted at the discretion of the lender.
The biggest drawback to forbearance: Interest will accrue on the loan. That will increase the amount you owe when you emerge from forbearance.
It's important to continue making payments until your request for deferment or forbearance is granted. If you fail to make your payments for nine months, your loan will be declared in default, and you'll be ineligible for either form of relief.

Source : By Sandra Block
Gannett News Service