Student Loan Counseling: Understanding Your Options
Whether your looking for student loan forgiveness, discharge, cancellation or simply need guidance, we can help.
Student Loan Counseling as offered by Money Fit is similar to counseling for other kinds of unsecured debt. You can expect that when you bring your student loan problems and questions to us, you’ll emerge from your free consultation with answers and an understanding of what to do next.
We will start by identifying the types and amounts of your loans you have as well as who services your account(s). Next, we can compare your income to your expenses to determine your ability to repay your loans on your current repayment plan. We can then offer a variety of solutions that fit your needs.
We know everyone’s student loan story is unique. It can be difficult to repay loan balances when overborrowing has occurred, there has been budget mismanagement, adequate income sources have become scarce, or a life or medical hardship has been experienced.
Though you may be tempted to ignore your student loans all together, let’s look at why it’s best to deal with them sooner rather than later.
Types of Student Loans and Their Disadvantages
The two main types of student loans include private and federal student loans. Private loans are offered through a bank or financial institution while federal student loans are supplied through the U.S. Department of Education. Both types offer their own variations for the following borrowers:
Parents of Students
Each type of loan has its own terms and conditions that dictate the process of repayment.
Private Student Loans
In recent years, private student loans have improved their terms to remain competitive. Some private loans offer delayed interest, a 6-month grace period following the student’s exit from schooling, and hardship repayment options including forbearance or deferment.
Where most consumers run into trouble is with the interest rate and lack of income-based repayment plans. Interest on private loans is often higher, sometimes even double the amount of federal student loans. While private lenders may alter repayment arrangements for a set amount of time, they fully expect borrowers to return to the agreed upon payment amount and schedule once their leniency has run out.
Student loan counseling can give individuals a clearer understanding of the basics of borrowing and the conditions of their private loan but can do little to alter repayment terms if they have become a burden. Borrowers will need to reach out to their private lender directly and speak honestly with a customer service representative.
If borrowers are looking for better rates or a simplified repayment method, they may consider refinancing or consolidating their loans.
Federal Student Loans
Federal student loans continue to offer borrowers the most benefits and protection.
Direct Subsidized Loans, for example, are intended to aid those with financial need. The interest on these loans are subsidized or paid while the student is in school, through a 6-month grace period following a student’s exit from school, and during times of deferment.
Direct Unsubsidized Loans are often obtained when a borrower’s need spans beyond Direct Subsidized loans. They may help cover education expenses, but often come at a higher cost.
Because these loans are unsubsidized, interest begins accruing once the loans have funded. This running interest is then added to the original balance when the borrower enters repayment. The loan’s life interest is then recalculated based on this new balance. This is called capitalization and means a portion of the borrower’s monthly payment will go toward paying interest on interest for a portion of the loan’s repayment term.
Those who have struggled to understand how interest impacts their loans can find themselves falling victim to it. For example, interest may balloon a loan’s original balance causing monthly payments to be higher than borrowers might expect.
While federal financial aid is calculated based on student needs and expected tuition, the amount of loans offered is often excessive. Students can easily over-borrow creating difficulty in meeting the payments when the bill comes due.
The good news is Federal student loans were designed to be manageable. Individuals with these loans should take comfort in knowing that the U.S. Department of Education has options available to help all borrowers repay their debt successfully.
Student loan counseling can determine eligibility for these programs and help borrowers avoid the long-lasting consequences of defaulting. If payments on your federal student loans have become a burden, we encourage you to reach out for help finding a comfortable solution.
WHAT ARE MY REPAYMENT OPTIONS?
Most loan servicers like to believe that one size fits all and therefore enroll their borrowers in a standard repayment plan by default. This means the loan’s repayment is stretched out over 10 years of level payments. Ideally this is affordable for graduates who are qualified to secure adequate income. However, life happens and for almost every incident, there is a correlating repayment plan.
One particular plan is designed to mirror a graduate’s income growth. It starts with a smaller payment in the beginning and grows bigger over time as hopefully the individual’s income increases as they climb their career ladder. Several other plans base their payment structure entirely on an individual’s current income. These plans provide lower payments in exchange for a longer loan term.
Our knowledgeable counselors can help determine eligibility for these programs and file the appropriate paperwork to request enrollment.
How Do I find out what kind of stuent loans I have and who services them?
The Department of Education maintains a database of all federal student loans issued called The National Student Loan Data System (NSLDS). By creating an account, a borrower is able to view details about their student loans including what federal loans have been take out in their name and who currently services the account.
In order to create an account, an individual will first need an FSA ID. This may have been obtained when using the FAFSA to apply for financial aid. If not, a new ID can be created by completing the process on the NSLDS.ed.gov site.
Those with private student loans can verify their loan information by obtaining a free credit report from AnnualCreditReport.com.
How and where can i find out how much I owe?
If you have federal student loans, you can view your loans and balances through the National Student Loan Data System (NSLDS), a database built by the Department of Education. Refer to the previous question for instructions on getting started.
If however, you have private student loans, your most recently reported balances will appear on your credit report. This can be assessed through AnnualCreditReport.com
If you know your lender, calling directly and asking or setting up online access to your loans will give you a more accurate picture of the amount you owe.
Which student loan repayment plan is best?
The standard or graduated repayment plan for federal student loans may be considered the best because their shorter terms free borrowers from their loans in the shortest amount of time with the least amount of interest paid.
That being said, the best repayment plan for an individual will be manageable for the long haul. Repaying federal student loans was never meant to be a burden or impact future financial decisions such as starting a family or buying a home. Finding the right plan will mean you can automate your repayment while living the life you choose.
How can I lower my student loan payments?
Whatever your reason for needing to lower your payments, our student loan counselors can help you find a solution to accommodate your needs.
Lowering your payment can be as easy as requesting to be switched to a new repayment plan. In some instances, you may need to provide documents to verify income.
Your student loan counselor may also help you rework your budget in order to better afford your payment as it is.
If after reviewing the many plans the U.S. Department of Education offers, it is found that you don’t qualify for relief, then you might consider refinancing or consolidating your loans. Keep in mind that if you accept these services from another party, you are choosing to forfeit the protections the U.S. Department of Education offers.
What Happens if I don't pay my student loans?
When repaid according to plan, Student Loans have very little negative affect on the financial health of borrowers. If however, borrowers have failed to remedy overwhelming student loan payments, the consequences can affect forward progress for years to come.
In difficult circumstances, when borrowers are unable to make loan payments, they would be wise to contact their loan servicer to request a Deferment or Forbearance.
If a borrower can’t or decides not to make payments on their loans, lenders will likely take action to recuperate the money owed. Leniency is reserved for those who have made an effort to meet their obligation as best as they can.
Can my wages be garnished to repay student loans?
Yes, if you have failed to repay your loans whether private or federal, your lender can motion to have your payment automatically taken from your wages. Private lenders will need to take the matter to court to have it ordered. Federal loan servicers will only need to send you a 30-day notice before garnishment begins.
Can student loans be forgiven?
Immediate student loan forgiveness is an unrealistic expectation. However, there are several paths a borrower with federal student loans can take to have their debt forgiven after a number of on-time payments.
Individuals must first make themselves eligible for forgiveness by enrolling in either the standard repayment plan or one of four income-based repayment plans including the REPAYE, PAYE, IBR, or ICR plans. Once enrolled, borrowers can expect that no matter their remaining balance, their debt be forgiven after 20-25 years of regular payments.
Public Service and Teacher Loan forgiveness are also available to Federal Direct Loan borrowers so long as they obtain a full-time (30+ hours), qualifying position. This might include teaching or working for a nonprofit or governmental agency. A form called an Employment Certification must be submitted soon after employment is obtained, and the borrower will need to continue making payments according to schedule. Forgiveness can be requested after 120 on-time payments are completed.
Consolidation might be required for a Federal Perkins Loan or Federal Family Education Loan before they can be considered for forgiveness.
Student loan counselors have the necessary knowledge to select the correct repayment plan and navigate the application process to ensure you are on track to forgiveness. However, it is wise to re-verify your eligibility with your loan servicer from time to time due to changing policies and reform.
Private student loans offer no direct route to loan forgiveness though in the case of death, disability, or other extreme hardship exceptions have been known to be made.
Will student loans ruin my credit?
Student loans are recorded as part of your credit history once your loan account has been opened and will be seen by future lenders. So long as your loans are paid on-time and eventually in full, they will not negatively impact your credit.
However, if you miss payments or worse, default on your loan, this will be noted in your credit history and can impact your credit score for 7 years. That said, the further in the past these incidents are, the less impact they will have.
Can student loans be discharged in bankruptcy?
When borrowers can prove that they cannot currently and will not ever be able to afford repaying their student loans they can be discharged in bankruptcy. This has occurred in only 3% of cases taken to court. In all other circumstances, student loans must be repaid in full.
Working with a student loan counselor or directly with their lender, borrowers who have emerged from bankruptcy with student loans remaining can negotiate a manageable repayment plan.
Why choose Money Fit for your student loan counseling?
As a nonprofit organization that has been in operation for over twenty years, Money Fit has certified credit counselors on staff that will do everything they can to aid you in the decision making process as far as how to best proceed with your loans.
The consultation and review of your student loans if completely free of charge. There is a fee for additional filing assistance. However, this service is optional. Our mission is to help you understand and navigate a student loan process that can feel complex and overwhelming at times.