Repaying Your Student Loan in a Tough Economy!
61The rules of employment in the United States have significantly changed due to the struggling economy. Only a few years ago having a college degree practically guaranteed a good paying job, now these days I’d assume we all know better. The project on student debt paints a shocking image for this year’s graduates.
The report shows that the dollar amount of college loans for those graduating in 2008 have increased by an alarming 24%. Now what are the job prospects of students who need to repay those loans? Not very good. The unemployment rate for recent college graduates just reached an all time high of 10.6%, running neck and neck with the jobless rate for all workers and there is more bad news for those lucky enough to have found full time work.
Studies have shown that those who secure employment in difficult economic times generally receive low wages throughout and even beyond their first decade of employment. In a recent Wall Street Journal Interview Lisa Cohn a Yale School and management economist revealed that each one percent increase in the unemployment rate back in the recession of 1982 had a direct impact on the earning potential of college graduates, a statistic that she feels s about to be repeated. According to Cohn an individual graduating in December 1982 when the unemployment rate was 10.8 percent earned 23% less on average during their first year out of college and 6.6% less after 18 years of employment. For a typical worker that would mean earning $100,000.00 less over the 18 year period.
The financial difficulties faced by today’s graduates have changed significantly since the early 80s, college graduates are leaving school with much higher levels of credit card and student loan debt. When you combine the possibility of decrease earning potential with increased financial obligations it spells nothing but trouble for student graduating this year. While credit card debt can be difficult to deal with, student loan debts present an entirely different set of challenges. Fortunately there a several repayment plans available, but choosing the appropriate option requires doing a little more homework.
Here’s an overview of the plans use to pay student federal loans.
Standard Repayment Plan
The standard repayment plan requires a student to pay a fixed amount each month until the loan is repaid. This option typically results in the highest monthly payment because the repayment time, 10 years, is the shortest which means you pay the least amount of interest. If you don’t choose a plan this is the one you would be placed in, though you can change it later on.
Extended Repayment Plan
Under the extended repayment plan a student will pay a fixed amount annually or a graduated repayment amont over as much as 25 years. In order to qualify for the extended repayment plan the student must have more than $30,000 in outstanding loans. While the monthly payment is lower, interest is accumulating throughout the duration of the repayment period. Meaning your pay much more money over time than you originally borrowed.
The graduated repayment plan is intended to keep pace with a student’s rising income during their initial working years. The repayment timeframe is generally 10 years, therefore this repayment option is beneficial primarily for individuals who are certain that their income will rise over time.
Payments under the income based repayment plan are based upon an individual’s financial circumstances, such as income and family size. There are some unique benefits to the income based repayment plan, first if the student makes payments under the plan for 25 years and meets a few other requirements, any balance remaining at the end of the term maybe canceled.
Furthermore if you work in certain public service organization and make reduce payments through the income based repayment plan, your remaining balance maybe canceled after just 10 years. Each of these options has a specific set of criteria that must be satisfied, but they are definitely worth exploring in detail.
