With the student loan crisis in full swing, millions of students graduate college with no idea what to do next. They may have a brief reprieve, but for the most part, repayment of loans begins immediately. With their shiny degree in hand, did the student find a great job right away? Odds are, the answer is no, but the lenders don’t care either way.
There’s a reason why the elite mock millennials for being the generation that still lives at home with their parents. It doesn’t mean they’re lazy and refuse to work. Student loan debt has become a crippling problem for this generation. For the last decade, the economic crisis made finding meaningful work nearly impossible.
The economic climate doesn’t matter to lenders. They want their money back, job or not. The monthly payments can be as high as $800-$1,000, depending on how much you borrowed. That’s the cost of rent. With so many students graduating and facing immediate hardship, many turn towards forbearance to give them some time.
What is Forbearance?
After a student leaves college, their student loan is due immediately. The amount of the payment depends on a variety of factors. In the event of an economic or financial hardship on the student, they can decide to apply for forbearance.
Forbearance is a process that allows students to put their student loan payments on hold for a temporary period, usually up to 12 months. This is a good thing for people suffering with financial difficulty to get a little extra time, but it should only be used for emergencies. Yet, its usage is becoming a trend among people with debt.
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Because you can get an unlimited number of forbearance deferments, a lot of students are putting their payments off for years, at a great cost to themselves. In the second quarter of 2018, 2.8 million student loan borrowers are considered in forbearance. A number of these cases remained in forbearance for 18 months or longer.
Why You Shouldn’t Put Off Your Student Loan
Forbearance isn’t a long-term strategy to avoid paying your loans. It should only be used in cases of a financial emergency. For example, if you injure yourself and cannot work, or the loss of a loved one. Students all over the country keep making the same mistakes. They jumped at a chance for an education, but weren’t prepared for what came next.
So, they avoid paying their loans as long as possible. They push it out further and further, but don’t realize they’re only making the situation worse for themselves. Even during forbearance does interest accrue on a student loan. That means the amount you owe will continue getting bigger during that time.
Over the period of a year, depending on the amount of interest, your loan could grow by $1,000-$2,000. That’s only the first year. Over the life of your loan, the interest continues to grow. Some students can never get out from underneath the revolving cycle of interest and actually pay down their loan.
Better Options
To recap, forbearance should only be used in a time of crisis. If you absolutely cannot pay your monthly bill, you can get it push off by a month or two. Your student loan will not go anywhere or magically disappear just because you push it off. In fact, the interest rate will only further grow your ending balance.
If you’re struggling to pay off your student loan, there are other options available to you. The PAYE and REPAYE are income-based programs that allow students to remain up-to-date on their payments. If you have a limited budget, you can pay what you can afford. As time goes on, as you make more money and your credit score improves, you can refinance your loan.
The worst thing you can do is get frustrated and give up. It will only add to your problems. Pay your balance down and keep to a schedule.
