College debt: Loan consolidation programs for struggling students

Loan Repayment OptionsAccording to the financial experts, students who took out federal loans because it offered them fixed interest rates and payment deferments are now struggling to repay their loans as per the agreement. Hence, the government has provided few flexible loan consolidation programs so that they do not have to strain their finances any further. Due to these government-backed debt relief programs, students are saved from approaching the private debt consolidators for help.

So, students can go through the remaining article in order to get the basic knowledge of the student debt repayment programs.

Student debt consolidation programs

Following programs have been developed by the government in response to the demand of struggling low wage earning borrowers:

1. Public Service Loan Forgiveness (PSLF) program – This program has been formed by the College Cost Reduction and Access Act. Students who are full-time employees of a public sector enterprise and are eligible for the program will have to make 120 monthly loan payments for a period of 10 years. The payment will be made just once every month. Borrowers will have to be associated with a non-profit organization like Peace Corps or AmeriCorps.

People with Federal Direct loans are only considered for this program. Moreover, students who have federal loans from private bank and Federal Family Education Loan (FFEL) will have to consolidate their loans into Federal Direct loans in order to qualify for the PSLF.

2. Income-Contingent Repayment (ICR) programs – This student debt repayment program is much older than the Income-Based Repayment plan. Students with Direct loans are eligible for this program. Before students are approved of the program, ICR conducts a test of the applicants’ financial hardship. The test evaluates the income of the students and their spouse.

Moreover, ICR also examines the size of the borrower’s family and the overall direct loan amount. However, students are exempted to personally prove their financial hardship so as to get their loan applications approved. The loan repayment amount is adjusted annually on the basis of their ongoing financial condition.

3. Income-Based Repayment (IBR) programs – This is the most revered loan consolidation program amongst the struggling borrowers. Here, under this program, students are required to substantiate their financial hardship claim with proper proofs. In this repayment plan, borrowers will be making reduced monthly payments for an extended period of time. The IBR monthly payment amount is derived after taking the optional income of the borrowers in to consideration.

As a result, the payment amount derived is affordable as well as suitable for the borrowers. Students whose total yearly outstanding balance is in excess of 15% of their optional income as per the standard repayment plan can qualify for the IBR.

Moreover, students are approved of the IBR plans after calculating their disposable gross income, the poverty line and their family strength. Hence, students who are not financially well off should contact the Department of Education for help. Moreover, they can consult with the loan servicers and financial aid officers for better advice on a repaying their debt comfortably.

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80 Responses to “College debt: Loan consolidation programs for struggling students”

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