College Graduate

So, you are about to graduate or you have recently graduated and now you need to understand what you agreed to when you signed for your student loans.  The first thing you must understand is that you must pay back your student loans at some given point in time, so I hope you only borrowed what you needed.  Outside of that, there are several loans for which you can borrower against and you must know which ones you have in order to know how the interest in incurred and when you will need to start repayment.  Review your outstanding loans and the current interest rate and if it is fixed or variable.  You could either have a government loan or a private loan.

The government loans can be either subsidized or unsubsidized with a fixed rate depending on when the loan was awarded with a six month grace period after graduation.  The subsidized loan is needs based and will not accrue inter while you are in college or during the six month grace period after you graduate.  The unsubsidized loan is not based on financial needs and you will be responsible for the interest that accrues on the loan while you are in school and during the grace period after graduation.  You can qualify for either loan when you complete your FAFSA paperwork.  The subsidized loan amount will be determined by the college you will be attending.  The Perkins loan is also a governments needs based loan, but it is for students with extreme financial needs.  The interest rates are lower and have a nine month grace period instead of the six month, there are also no fees involved.  If you were not able to qualify for a government loan you may have received a private loan.

A private loan would have been granted by a financial institution or by Sallie Mae.  Many loans are released through Sallie Mae.  If you received a private loan your rate is typically variable and you may or may not have a grace period after graduation.  You must read the terms of your agreement to repay your loan.  There are several repayment options to your loan whether you have a government or private loan, you will need to go directly to their website to see what they are. 

You will usually have at least six months after you graduate before you will have to restart paying back your student loan.  If you are unable to pay your loan by the six month or the last month you will need to contact the lender to see if you qualify for a deferment or forbearance.  If you are working, but not able to pay the requested payment you can request a forbearance.  A deferment is allowed for a period of specified time allowed by the lender, based on the reason for the request.  During this time you will not have to make a scheduled payment.  If you receive a forbearance you can either pay nothing during the time period or you can pay an adjusted amount for a specified period of time.  The main point is to not default on your student loan.  You may receive a forbearance while in default, but most lenders want you to enter a default program in order to be considered for any other special programs.  If you are delinquent, but not in default you can use the forbearance program to delay going into default.  You do not want to go into default due to they can request a judgement against you and garnish your wages, especially if it is a government loan. 

If you return to school your loans will go back into deferment until you graduate and the payments will resume.  Please do not be afraid to discuss your options with your lender by reviewing their site or speaking with a representative.  If you are late on your payment it will reflect negativity on your credit report, so be proactive.  The good news is there are ways to have the debt canceled.

You can request a cancellation of debt through bankruptcy, which is the most difficult way to do it, death, disability, or there is an issue with the school you attended and incurred the debt.  You can also request a cancellation of debt because of the profession you have selected.  There are several government jobs that will cancel a portion or all of your student loan debt, but requires your service for a specific period of time. You can learn more at http://www.studentloanborrowerassistance.org/loan-cancellation/.  If your debt is canceled and the amount is over $600 you will have to claim it as income on your tax return, but you will need to speak with a tax professional to advise you of how it will affect you individually.  The reason you will have to claim it as income is because you did receive the money for its intended purpose, but didn't have to lose money in paying it back.  So, in doing so you actually got to keep that money you would have spent and the government says that is income for you.  You will receive a 1099C informing you of the amount and tax period you will have to claim.