Student Loan Debt Mistakes to Avoid

If you are a recent college graduate and are looking at student loan repayment options, or if you are currently in repayment, it is important to know about common consumer mistakes that can end up costing you substantially in the long run. As most residents of the Chicago area know, it is difficult, but not impossible, to have student loans discharged in personal bankruptcy. As such, you should think carefully about how you handle your student loans and the repayment options available to you. According to a recent article from CNBC News, the following are mistakes that student loan borrowers often make.
Mistake #1: Missing Regular Payments on Your Student Loans
Last year, the Consumer Financial Protection Bureau (CFPB) reported that approximately seven million student loan borrowers were in default. Many college graduates are leaving the university with tens of thousands of dollars in student loans. As the article suggests, when you are dealing with such a significant amount of debt, it might not seem like a big deal to miss a payment or two and to have late fees added onto the total balance you owe. However, late fees will not be your only problem if you stop making payments on your student loans. As we mentioned above, Chapter 7 bankruptcy frequently will not include a discharge of your student loan balance (either government or private student loans). If your student loan balance is turned over to collection, you could end up paying an addition of “18 to 40 percent to your total outstanding balance.”
At what point are you considered in default on your loans? Typically, after nine months of failing to pay federal loans, you will be in default and will no longer be eligible for the income-based repayment and forgiveness programs through the government. The stakes often are higher for private loans, as missing even a month’s payment can place you in default.
Mistake #2: Failing to Apply for Income-Based Repayment (IBR) Programs
If you have federal student loans, you should not assume that you will have to repay the balance under the Standard Repayment Plan of 10 years. To be sure, many borrowers qualify for some form of income-based repayment (IBR), which can reduce monthly payments significantly. These programs, such as the Pay As You Earn (PAYE) or the Revised Pay As You Earn (REPAYE) programs can limit your monthly payments to only 10% of your discretionary income. Even if you do not qualify for PAYE or REPAYE (depending upon when you began borrowing), you may still be eligible for some form of income-driven repayment that will limit your monthly bill to a percentage of your discretionary income.
Mistake #3: Failing to Think About Accruing Interest
Depending upon the type of loan and when you took it out, student loan debt accrues interest at different rates. If you are thinking about consolidating or refinancing your loans, you should be sure to consider whether refinancing at a higher interest rate will end up costing your more in the long run. In addition, student borrowers should consider the benefits of making smaller, additional payments to lower the total balance (and to reduce the total amount of interest they will pay).
If you have questions about managing consumer debt or if you have been targeted by a debt collector who may have violated the Fair Debt Collection Practices Act (FDCPA), you should speak with an experienced Oak Park consumer protection attorney as soon as possible. Contact the Emerson Law Firm today.
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