Survival Guidance for Student Loan
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MISSING PAYMENTS
Be sure to contact and notify the lender if you know you are going to miss or be a late on a payment. The penalties of default student loans are significant. Defaulting on student loans can include the inability to apply for additional financial aid, garnish of wages, a bad credit rating, and the inability to obtain future credit. Legal action can also be taken to recover unpaid student loan balances and fees. According to the Department of Education, student loan borrowers have 270 calendar days of nonpayment before the student loan goes into default. Once the student loan lender has unsatisfactory attempts on trying to collect the money borrowed, then the lender could decide to sell or hire an outside collection agency to try and collect the money. Once the student has reached this point, the outside collection agency could add up to 25% of the student loan for collection fees. The Department of Education has reported that the federal government is presently trying to collect an estimated $31 billion in defaulted student loans. Contact your loan lender and/or the Department of Education directly at 1-800-4FEDAID if the borrower is experiencing difficulty maintaining their obligation of repayment. Lenders do not want the borrower to go into default and force them to proceed into collections. Keeping in contact and updating the lender with information is the best thing to do.
FORBEARANCE AND DEFERMENT
At some point during repayment the borrower might come upon a hardship or difficult situation in their lives dealing with finances. The borrower, if eligible, can take a break from making payments. Borrowers can suspend repayments through forbearances or deferments. Forbearance and deferments permits the borrower to delay repayments for a short or long period of time. Forbearance and deferments is the best alternatives instead of letting the loans get into default.
A deferment permits the borrower to suspend loan repayments for certain periods of time under specific conditions, for example re-enrollment into school to finish or pursue another degree, economic hardship, or unemployment. The borrower has to request a deferment from the loan lender and fill out the necessary paperwork. Lenders usually have a deferment form online that the borrower can complete and submit. To be eligible for a deferment, the borrower must be going through a financial hardship, be currently looking for full-time employment but unable to find employment, in a rehabilitation training program, be at least a part-time college student, or in a graduate fellowship program. Under certain circumstances, the borrower might have to show documentation to prove eligibility for the deferment. While reenrolled in school, there is no limit for deferments. Economic hardship and full-time unemployment, there is three-year limit for deferments. The forbearance option is for borrowers who are having temporary financial hardship. The borrower has the option to reduce or suspend payments for a specific amount of time and under certain circumstances. The forbearance option is approved in increments for up to one year at a time.
For the duration of forbearance and deferment periods, interest will continue to accumulate on the loans. When the borrower resumes loan payments, the interest will be added to the amount. If the student borrowed a subsidized Stafford Loans, then the federal government pays the interest, while the student is in deferment. Also with the forbearance, the borrower has the option to pay the interest as it accumulates. All unpaid interest is added to the principal balance.
For students with Direct Loans and is requesting a forbearance, the Department of Education website offers an online application form. The application gives the option for the borrower to either reduce the monthly payment or temporarily suspend payments. The borrower can specify the monthly payment amount, if they choose to reduce payments. The forbearance application has to be printed, signed, and mailed to the Department of Education's Direct Loan Servicing Center. Federal Family Education Loan borrowers must speak to their lender directly for forbearance and deferment form instructions.
CONSOLIDATING STUDENT LOANS
A student loan borrower chooses to consolidate their student loans to reduce their loan payments. For borrowers who have several student loans from different lenders, such as EdAmerica, Department of Education, Citibank, and Wells Fargo should consider consolidating their student loans to reduce monthly payments. Borrowers who have only a couple of loans from one or two lenders should not consider consolidating their student loans. The decision to consolidate student loans is based on an individual basis and should be dependent on several factors i.e. income, available credit, debt-to-credit ratio, and/or financial conditions.
If you decide to consolidate your student loans, research several student loan consolidations companies first. Some student loan consolidations companies offer an interest rate reduction for consolidating with them. They might also offer an interest rate reduction by making consecutive on time payments. Be advice when you decide to consolidate your student loans you will not be able to unconsolidated them. Make sure you read the fine print because if the borrower decides to consolidate and then takes out another student loan, some companies will not let you reconsolidate. It is very important the borrower does research and get expert advice. There is a setback for consolidating student loans. If the borrower has already been making payments to lenders prior to consolidating, it will take the borrower longer to pay off their loans. For example, if the student had two loans from two different lenders for $5,000 and was paying $200 a month for each one, it will take approximately 25 to 30 months to pay off. But, if the student decided to consolidate these two loans to reduce the monthly payment from $400 to about $250, it will take the student 40 to 45 months to pay off. The main reason for this is because borrower refinances their student loan, therefore they start over with their payment plan. So, if the borrower does decide to consolidate their student loans, the best time to consolidate them is when the borrower is in their grace period. For additional information about consolidating student loans, go to: www.studentloansreport.com/consolidate.html.
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