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Any accrued unpaid interest will be added to the student loan principal and capitalized when the borrower no longer qualifies for income-based repayment. Subsidized Interest and Student Loan Forgiveness For those borrowers who hold subsidized student loans or a federal consolidation loan that included subsidized Stafford loans or Perkins loans the government will cover any unpaid interest on those subsidized loans (or on that portion of a student loan consolidation thats comprised of subsidized loans) for the first three years that a borrower is in income-based repayment. The longest that a borrower can remain on the income-based repayment plan is 25 years. After 25 years of income-based payments the government will forgive any remaining principal and unpaid interest - although borrowers should note that under current tax law this forgiven student loan debt would be taxable.
Because we know that borrowing to attend college is not going away steps to offset the bite of borrowing to attend college should be taken as far in advance as possible to reduce and manage your debt. Here are some steps to you can take to ensure you are borrowing responsibly. 1. Avoid Falling into The Loan Trap - If at all possible avoid borrowing; however if you are like most students attending college you have no other choice but to do so. When it comes time to borrow do not be tempted to borrow the full sum available to you personally on the loan loan of the loan doing so can give you a false sense of financial security. Often when you get the maximum amount of a student loan it is usually more than you can afford to repay. This usually happens when students take out a need-based loan.
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The debt from any co-signed loans will also remain on your credit report as an open obligation until the debt is repaid (or written off in the event of a default). 4 Tips for Protecting Yourself as a Co-Signer on a Student Loan So should you co-sign on a student loan? You can never predict the future and unfortunate circumstances can derail even the best-intentioned and responsible student borrower. If you do decide to co-sign on a loan (or any other loan for that matter) make sure you clearly understand what your responsibilities are and under what circumstances you would be expected to take over the note: 1) Have a firm understanding with your primary borrower about the repayment plan -- you may even want to consider putting a signed written agreement in place between the two of you -- and stay in contact with the lender to make sure that the monthly loan payments are being received on time and as agreed. If your primary borrower misses a payment date contact her or him immediately to discuss the problem.
As a borrowers income rises the income-based repayment cap will also go up. If the income-based repayment cap reaches a level higher than what a borrowers monthly payment would be under a standard 10-year student loan repayment plan the borrower will no longer qualify for income-based repayment for her or his student loans. Borrowers whose adjusted gross income falls below 150 percent of the poverty threshold wont be required to make any payments on those student loans that qualify for income-based repayment. Even if no payments are due however interest will continue to accrue on those college loans . Unpaid interest will also accrue if a borrowers income-based monthly payments arent sufficient to cover the full monthly interest on the qualifying college loans.