Three Ways to Protect Your Credit from Student Loan Debt

Let’s turn our attention to an area that has become an epidemic – student loans and the inability of young individuals to ever repay them. The latest figures as of time of publication have student loans at over $1.4 trillion dollars and climbing. Many of these borrowers will fall behind on payments and eventually default entirely. 

It can wreck your credit when these unpaid loans appear negatively on your credit reports. Be sure they will show up sooner or later if you default.

Though you may be seemingly hopelessly saddled with enormous ongoing student loan payments, there is some light at the end of the proverbial tunnel in the form of new and little known ways to limit your repayments. These include extended repayment plans, graduated repayment plans, and Income Based Repayment plans with the Secret Student Loan Forgiveness Program. 

1. Extended Repayment Plan

With an extended repayment plan, the magic is that the federal government will kindly allow you to simply expand the amount of monthly payments you will make in the lifetime of your loan. This can be for as long as 25 years. All that it takes to accomplish is to contact your lender and tell them that you want to extend your repayment plan.

By taking it out from the standard 10 to 25 years, you will massively reduce your payments on a $38,000 loan amount. Instead of paying back a crippling $381 per month, you will now repay at a rate of $196 per month, a dramatic monthly savings of $185 per month, or nearly half.

2. Graduated Repayment Plan

Using a graduated repayment plan, you can do even better than this. Again you will have 25 years to fully pay down your $38,000 in sample student loans, but they will build up the payments over time as you have more income to rely on in the repayments. Your initial payments would only amount to $120 per month in your first year. By the last year, you would be up to $359 per month in payments. 

You could also do this on a shorter time frame using the original 10 year repayment plan, with initial payments amounting to $213 per month and rising to $638 per month in year nine.

All that you have to do to get onto this advantageous repayment plan is to contact your lender and request it. 

3. Income Based Repayment

There is also a little known and highly useful third option called Income Based Repayment. In this generally self explanatory option, your payments will be calculated using your underlying income. The formula factors in your income amount, the poverty line in your state, and then sets your repayment amount at 15 percent of your remaining income (or 10 percent for new borrowers). 

Another fantastic appeal of this Income Based Repayment is that you can get student loan forgiveness on any remaining debt from this loan after either 20 or 25 years, depending on the date in which your loans originated. This is sometimes referred to as the Secret Student Loan Forgiveness Program. 

Consider that if you obtained your original student loans before the date of July 1, 2014, then your payment could amount to as little as $77 per month. For those who got their loans after July 1, 2014, the student loan repayment amount could drop to as little as only $52 per month.

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