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What IS Financial Responsibility?

“Be Responsible. Take responsibility for your actions.” It sounds simple, right? But what responsibility means to me has changed over the course of my life.

In fact, there are so many definitions of responsibility that Wikipedia doesn't even have a definition listed on its main responsibility page! There are over fifteen types listed there with links to their respective pages (though to be fair, one is a song).

Since I have approximately $100,000 in student loan debt, I now find myself faced with the task of becoming financially responsible. But what does that mean? What type of responsibility do I face?

Responsibility as Legal Obligation
The law of obligation is the most straightforward. When I took out student loans, I entered into a legal contract wherein I got money up front and in returned assumed an obligation to pay it back at a later date. In some ways, student loans are a pretty onerous and inflexible responsibility because they can't be discharged in bankruptcy.

However, federal student loans student loans are actually one of the most flexible types of debt to have because there are so many types of repayment plans. As long as you're communicating with your lender in good faith, it should be possible to stay in good standing.

Note: Private student loans may not offer the same flexibility. Because of this, some people consider private student loans to be a form of predatory lending, similar to payday loans.

You can opt for the standard repayment (10 years) which results in less interest paid. You can opt for the extended repayment (25 years) which results in a smaller monthly payment. You can opt for graduated repayment, so that you're making smaller payments when you're just starting out in your career.

You can also opt for income based repayment if you have a partial financial hardship. This can help you live within the confines of the balanced money formula even with a high amount of debt. This is because under IBR, repayment is capped at 15% of discretionary income.

Note: You only have to qualify for IBR once; that is, while the amount of your payments may fluctuate over the course of your loan, you can stay on the plan even after you no longer have a partial financial hardship. There are other benefits as well. The federal government will pay accrued interest for up to three years if your monthly repayment doesn't cover it. There is also a limit on the interest that can be capitalized.

There are actually even more options, and you're legally entitled to any of them if you meet the criteria. This enables you to choose the best fit for your situation. Typically, you can switch between payment plans as your situation changes. Additionally, after 25 years the remaining balance is forgiven (though the forgiven portion of the balance may be taxed as income).

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