You can get student loan help to reduce your payments

Why student loans can cost you a job – and 5 ways to get student loan help

I recently graduated from college with two bachelor’s degrees – and $45,000 in student loans. I thought those degrees would help me land a job, but I never considered the loans might keep me from getting one.

It seems more employers are checking your credit history before they hire you. And student loans are a big part of that, says a recent survey of HR professionals by Demos, an economic policy group based in New York City.

“Nearly half of employers check an employee’s credit history when hiring for some or all positions,” Demos says. And it’s not just high-level and high-paid managers who are being investigated. Here are some jobs where you might not expect credit to matter, but Demos says it does…

  • Maintenance worker
  • Telephone tech support
  • Office assistant
  • Delivery driver
  • Home care aide
  • Stockroom supervisor
  • Frozen yogurt server
  • Insurance salesman

OK, I can see that last one. But seriously, frozen yogurt? While it’s currently legal to use credit reports in the hiring process, Demos is lobbying for the federal government to ban the practice.

“Credit reports were not designed as an employment screening tool,” the organization says. “Instead, they were developed as a means for lenders to evaluate whether a would-be borrower would be a good credit risk.”

But until Congress agrees, recent grads like me are screwed, because the loan debt for grads is only getting heavier. The total amount of student loan debt grew 20 percent from the end of 2011 to May 2013, the Consumer Financial Protection Bureau says. There’s more student loan debt in this country than credit card debt.

In fact, 70 percent of the class of 2013-2014 will graduate with debt – and not just a little. The average is $35,200, according to a study by Fidelity Investments called the Cost-Conscious College Graduates Study. It says nearly all of them (92 percent) are depending on a primary job to pay back their student loans, and 21 percent expect to need a second job. More than half expect it to take a decade or longer to pay back their loans.

So a bunch of people are in the same boat as me, facing the prospect of insane payments or paying back student loans into their 30s. But what can we do?

Ask the federal government for student loan help

The vast majority of student loans, more than 90 percent, are made by the federal government. If your loans are from them and not private lenders – learn the differences through the Federal Student Aid site – you’ve got some options. One is called consolidation, which may be able to simplify and lower your payments.

“If you’re struggling to pay back your federal student loans, you should look into consolidation options made available by the Department of Education,” says John Philbin, owner of consolidation firm called Campus Debt.  “While you will end up paying more over a longer period of time, you’ll in most cases be able to consolidate all of these loans with one lender, paying less on a monthly basis.”

The Education Department also offers several repayment plans with lower payments. Why? Because a little money here and there is a lot better than having students default on their loans and pay back nothing.

But there’s a lot of information to comb through, and you will hit terms that you don’t know. Here is a glossary of student loan terms to help you understand the help when you do. Now, the options…

1. Deferment and forbearance

Six months after I graduated, I had two degrees and no job. Even worse, my six-month “grace period” for my loans was ending – and that meant I’d have to start paying close to $500 every month. So I applied for a deferment.

This option bought me more time, getting both the interest and the payments on my federal loans delayed for six more months. It can last up to three years depending on your circumstances, but the interest only stops for three kinds of federal loan: direct subsidized, subsidized federal Stafford, and federal Perkins loans. Any other kind of deferred federal loan still gains interest that you’ll end up paying.

There’s a similar type of aid known as forbearance, which allows you to delay or reduce your payment – but lets interest continue to accrue regardless of loan type.

2. Income-based repayment plan (IBR)

I got approved for a deferment right away, which gave me time to find work before making payments. I managed to get an internship and had money coming in, so I had to start paying my loans. But I wasn’t earning enough to make the $500 payments I owed. So I called Nelnet, the company that manages my student loans, and asked for advice.

They told me about a plan I qualified for called income-based repayment, which dropped my payments to $50 a month. I still owe just as much money, and it will take a lot longer to pay it off. But this way, I won’t default, and I can pay more as I make more. In fact, if it takes more than 25 years to pay back the loans, I might be able to get the remaining balance forgiven under this plan.

3. Pay-as-you-earn repayment plan

If you started college after October 2007 and took out a direct student loan after October 2011, you might qualify for this program. I didn’t have to use it, but I learned how it works.

If you qualify, your payments can be capped at 10 percent of your monthly discretionary income, a little less than under an IBR. You’ll have to ask about qualifying and what that payment will be, because the math is a little complicated and depends on your adjusted gross income and your state’s definition of poverty. If you have a recent tax return handy, there’s a calculator to help estimate payments for this and other repayment plans here.

Like an IBR, this takes longer to pay back, but the remaining balance can be forgiven after 20 years of on-time full payments.

4. Income-contingent repayment plan

I also didn’t get involved in this one because it didn’t apply to me. But if you don’t qualify for the two plans above, it might just work.

This plan uses a similar kind of calculation to help low-income borrowers with direct loans. At most, your payments will be 20 percent of discretionary income.

5. Forgiveness, cancellation, and discharge

These terms basically mean the same thing, even though they apply to different programs: You don’t have to pay the rest.

At best, my loan balance can be forgiven after 25 years of payments because of my IBR plan. If I were a nurse, policeman, fireman, or teacher, my loan might’ve been forgiven within 10 years under the public service loan forgiveness program. These and less pleasant circumstances (death or permanent disability) are really the only ways to get a student loan forgiven.

Unfortunately, I’m a writer.

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