It is understood that when you take out a loan, you intend to pay it back. But things can happen beyond your control that interrupt that plan. If the loan is a student loan, there are several options available for graduates who are in financial distress when the time comes to begin repayment.
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Significance of loans
If you have passed the grace period on your loan and are having a problem paying back the money as promised, a hardship repayment plan may be for you. Your lender should be able to work out a plan to ease most repayment problems. Generally the alterations work by either extending the loan to make the payments in the immediate term lower, by postponing payments, or both. However if you earn less than the Student Loans Company's income repayment threshold then you will not be required to pay. As of January 2013, this stood at £1,316.25 a month, or £15,795 a year.
Types of plans
It is important to compare repayment plans. For former students who are having a hard time making their payments, there are many different payment plans to accommodate them, based on their specific needs.
Deferments allow you to temporarily stop making payments on your loan. These are usually favoured by former students who are facing unforeseen circumstances, such as unemployment or economic hardship.
Forbearance is an agreement to stop payments for an allotted amount of time due to economic hardship. This usually extends the length of the pay back period. Forbearance only lasts for up to three years.
An extended agreement offers lower than usual payment terms stretched, out past the standard term.
A graduated repayment plan is an interest-only payment that starts low and gradually climbs. This is a loan plan for borrowers who do not expect to earn a high income soon after graduation.
Income sensitive, income contingent or income-based payments are proportional to your income each month.
Some people who have multiple loans can lower their payments each month by combining their debt using a consolidation plan.
One benefit of picking a repayment plan that meets your needs is that you have a plan of action that will keep you organised and less stressed as time goes by. Also, the better you keep up with the loan payments, the less likely you are to default.
Some loan programs offer incentives to start paying back your loan early (before the six-month grace period ends) as a measure of good faith. This could include reducing parts of your debt.
If you fear you may have trouble paying in the future, it may be a good idea to go ahead and start prepaying your loan before it's due, to get into the habit of making payments.
Always answer everything your loan provider mails you and make sure that your personal contact information is up-to-date at all times. Never try to dodge your loan responsibilities, no matter how complicated or stressful they may seem.
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