For many Americans, the journey toward a college degree may involve an interruption measured in months or years. Some students may have to leave college for a number of reasons, including to resume full-time work to cover living expenses, manage serious illness or regroup after earning a low GPA, to name a few.
For those who had to finance the first stage of their degree program with student loans, they will have an important decision to make about how to manage that debt when they are ready return to college. Because this can be a delicate decision complicated by a range of different scenarios, the Student Loan Ranger is here to help spotlight a few key considerations for deciding how to manage existing student loans when resuming an interrupted degree program:
— Know your loan status and type.
— Understand the best conditions for deferment.
— Review income-driven repayment plans.
— Factor in private loans.
[Read: How to Find How Much You Owe in Student Loans.]
Know Your Loan Status and Type
Before re-enrolling in college, check the status of your loans to be sure your payments are on track. Your student loans will need to be in good standing in order to qualify for additional financial aid, and any loan that is in default will need to be brought current.
In most situations, resolving issues with delinquent student loans can be done by communicating with the loan servicer — the company that handles the billing and other services — to complete a series of on-time payments to bring accounts current.
It also helps to know the types of loans you have so you can determine the best course of action when restarting your degree program. There are two main categories of student loans: federal and private. Federal loans can be subsidized and unsubsidized, and private loans also have a variety of classifications. Knowing the difference can go a long way when it comes to managing your student loan status.
Understand the Best Conditions for Deferment
If you are planning to attend a college or career-based apprenticeship at least half time, some of your loans may go into deferred status. Deferments can be an ideal option for keeping existing student loan debt on ice when resuming a college degree, especially with federal subsidized loans, which don’t accrue interest during the deferment period.
The opposite is true for other student loan types in which accrued interest from the deferment period will be added to the balance when payments resume. Depending on how long it will take you to complete your education and the loans you are placing in deferment, this could mean hundreds or thousands of dollars of additional debt you will have to repay on the balances you owed at the time you resumed your coursework.
[Read: Know When It’s OK to Postpone Your Student Loan Payment.]
Review Income-Driven Repayment Plans
Federal student loans come with the option for borrowers to request enrollment in income-driven repayment programs designed to lower monthly installment payments as a percentage of income. The type of loan you have will determine which of the options would be available, and you can get started by contacting your lender or visiting the Department of Education website.
If you plan to work full or part time while attending school, you may be in a situation where you are enrolled in a class schedule that is considered less than half time. That can leave you without the option for deferring your existing loans, but the good news is that an affordable student loan repayment plan can still help you effectively manage that debt.
The advantage of enrolling in or remaining on an income-driven repayment plan is that your monthly payment could be as low as $0 under certain circumstances. In fact, you could still earn a salary and qualify for a $0 monthly payment if you are earning at or below your state’s poverty threshold. In situations where you may need to continue earning in order to support a family or manage the basic costs of living while attending college, this may be the ideal option for you.
[Read: Know How to Talk to Your Student Loan Servicer.]
Factor in Private Loans
Choices related to private student loans are a little different, but the good news is that some lenders may not require that you make regular payments while getting back into your degree program. You will want to check with each of your lenders to understand what options may be available, and know that your loan balance may keep growing if they place you on a deferment plan.
If you have federal subsidized loans, the Student Loan Ranger recommends moving them into interest-free deferment. For all other qualifying loan types, an income-driven repayment plan should be the first consideration. Those who are already enrolled in such a plan should update their status with the U.S. Department of Education when going back to school in order to benefit from adjustments based on income changes.
More from U.S. News
How Taking a Semester Off Can Affect Your Student Loans
How to Manage Old, Unpaid Student Loans
Understanding the Statute of Limitations on Student Loans
How to Manage Student Loans When Returning to School originally appeared on usnews.com
