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Student Loan Options
Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually charger lower interest than other loans. Federal law regulates most student loan issues. After a borrower graduates, leaves school, or drops below half-time enrollment, they have six months before they must begin repaying their loans. This six-month period is called the "grace period." The grace period begins the day after you cease to be enrolled at least halftime at an eligible school.
Student loans cannot be discharged even with bankruptcy. Default (not repaying them on time) can result in damaged credit, additional collection fees of up to 25%, loss of tax refund, 10% loss of pay check, and even law suits filed against you. Sounds pretty bleak, doesn't it? If you are experiencing financial trouble there are things you can do to improve you loan situation.
Your student loan is considered to be in default when there has been no payment or attempt to arrange for payment for 180 days. To get out of default, the student must request a "reasonable" repayment schedule from the lender. The lender will consider the request based upon information supplied by the student and if the request is approved, the lender will suggest a new payment amount.
There are no specific guidelines in place to determine what a “reasonable” amount should be, but once the borrower accepts the new payment plan they must not reach default a second time. If the new payment amount is not acceptable the borrower must renegotiate with the lender. WARNING! Remember, You do not get a second chance to get your loan out of default. If you don’t agree with the terms you absolutely renegotiate the terms because once you accept them you are legally bound to honor the new payment terms.
You can apply for a new federal loan after you have made six payments on time. For your loan to be considered completely out of default you must make 12 consecutive payments on time.
After you have successfully gotten your loan out of default you can consider other options that might be open to you such as deferment, forbearance, consolidation, and cancellation.
Forbearance
If your loan is not in default and you are having difficulty making ends meet, you may be eligible to postpone payment. This is called forbearance. This is an approved delay in making payments for a specified period of time. Interest continues to accrue during the forbearance period
Deferment
Deferment is much the same as forbearance except that interest does not continue to accrue during the deferred period. Below is a list of some common reasons deferments are granted.
- Economic Hardship
- Unemployment
- In-School at least Half-Time, Graduate Fellowship Program, Rehabilitation Training
- Parental Leave, Working Mother
- Public Service Deferment for Armed Forces, Action Program, Tax Exempt Volunteer Program, Public Health Service Program, Peace Corp, NOAA
- Education Related Deferment for Intern ship/Residency Program, Teacher Shortage Area, PLUS Loan student In-School, Fellowship, or Rehabilitation
- Temporary Total Disability Deferment Request
CANCELING
It is possible to cancel a student loan but take a look at the reasons before you get excited. Obviously, there must be extreme circumstances to have a loan cancellation approved.
Cancellation over deferment or forbearance is sometimes needed. In order to qualify for cancellation you must get an application from your lender or from the Department of Education's Debt Collection Services Office (phone: 800-621-3115). Be certain to return all needed support documentation.
Reasons that might qualify a borrower for cancellation are more serious than reasons for deferment.
Some reasons that might justify cancellation are:
- Total disability
- Death of the member
- Member of armed services
- Certain full time teachers, nurse, medical tech, law enforcement, correction officer
- Certain professions working with disabled, or low-income high-risk children and their families
- Certain staff and volunteers for Head Start VISTA, or Peace Corp
CONSOLIDATION
If you have trouble meeting your monthly payments, have exhausted your deferment and forbearance options, and/or want to avoid default, consolidation may help you.
If you decide to consolidate your student loans there are some very important things to keep in mind when you do this. Most consolidation lenders will not consolidate less than a total of $7,500 in student loans. In general you will be able to get a repayment schedule of between 12 and 30 years. The longer the loan period the more the loan will cost you. The best choice would be to accelerate the payments and pay the loan off as soon as possible. Choosing the wrong loan can defeat the purpose of consolidation. When considering a student loan consolidation product you should consider the following issues:
- Is there an interest rate reduction if you make your payments on time
- Will the lender tailor your repayment plan to meet your financial needs should you want to pay off the loan more quickly?
- Are you able to get instant information on whether you qualify or if your loan's been approved? Can your loan be processed over the Internet? What kind of turnaround time can you expect?
- Are your customer services calls immediately answered by a live human being?
- Does the lender offer a range of plans to meet your specific income and financial needs?
There are many options available to help you manage your student loan debt. Remember; if you are not able to meet the payment terms of your student loans don’t ignore the problem. It will not go away. Information concerning the amount, disbursement, and repayment status (current or delinquent) of your student loans will be reported to one or more national credit bureau organizations regularly. If you default on your loan, this will also be reported to national credit bureaus. Good credit is a valuable commodity and will help you when you need to make major purchases such as a home or car. Protect your credit because bad or slow credit may disqualify you for future loans or may cost more money because lenders may charge you more interest on loans made to borrowers with low credit scores. Credit mistakes hang around for a long time so manage your finances and credit wisely.
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