Importance of Debt Management
It is very important for you to manage your debt appropriately. If you enter into default on your student loans you will...
- Lose your eligibility to receive federal financial aid in the future
- Lose the ability to make payments on your loan, as the entire loan will be due in full
- Risk incurring collection costs (up to 25% of your student loan)
- Damage your credit history for up to seven years, which could prevent you from purchasing a car or a home
- Risk garnishment of wages, which means your employer could be required to forward 15% of your wages to your lender
- Risk losing income tax refunds, which could be withheld and forwarded to your lender
What is a consolidation loan?
A consolidation loan combines several student loans (parent or student) from different lenders into one loan from a single lender. Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct Loans. Some lenders offer private consolidation loans for private education loans as well. Generally, private loans cannot be consolidated with federal student loans.
Is it a good idea for me to consolidate?
The interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated. Check the interest rates on your existing loans. If you have a 5% fixed rate on a Perkins loan, for example, and a 6.8% rate on a Stafford loan, you may be better off making multiple payments and paying off the Perkins loan faster, rather than lumping the Perkins loan into a more expensive loan and losing the low, 5% rate.
Where can I get a consolidation loan?
If you are interested in consolidating your loans, contact your existing lender(s) and find out how to initiate the process. Student loans can only be consolidated once.
What is Loan Forgiveness?
The loan forgiveness program discharges any remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007, count toward the required 120 monthly payments. Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program.
Who is eligible for loan forgiveness?
Volunteers, teachers and those who enter into military service may be eligible for loan forgiveness. To learn more about loan forgiveness, visit the following Web site:
What is income-based repayment?
The Income-Based Repayment (IBR) program is designed for borrowers who are experiencing financial difficulty, who have low income compared with their debt, and/or who are pursuing a career in public service. It does this by capping monthly payments at a percentage of the borrower's discretionary income, which is based on the borrower's income and family size, not the total amount borrowed. The monthly payment amount is adjusted annually, based on changes in annual income and family size. Most borrowers will have a monthly payment under income-based repayment that is less than 10% of their gross income.
What loans are eligible for the IBR program?
Income-based repayment is only available for federal student loans, such as the Stafford, Grad PLUS and consolidation loans. It is not available for Parent PLUS loans or for consolidation loans that include Parent PLUS loans. IBR is not available for Perkins loans, but it is available for consolidation loans that include Perkins loans. It is not available for private student loans.
How can I participate in the IBR program?
Contact your lender for more information.
What is income-sensitive repayment?
Income-Sensitive Repayment (ISR) is an alternative to Income-Contingent Repayment (ICR) for loans serviced by lenders in the Federal Family Education Loan Program (FFELP). ISR is designed to make it easier for borrowers with lower paying jobs to make their monthly loan payments. Borrowers must reapply for income-sensitive repayment each year. Borrowers are usually required to provide a copy of their income tax returns and/or W-2 statements every time they apply for income-sensitive repayment.
NOTE: Because income-sensitive repayment decreases the monthly payment, as compared with standard repayment, and is limited to a ten year repayment term, it increases the size of the rest of the monthly payments to compensate.
How can I participate in the ISR program?
Contact your lender for more information.
What is income-contingent repayment?
The Income-Contingent Repayment (ICR) plan is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. It does this by tying monthly payments to the borrower's income, family size and total amount borrowed. The monthly payment amount is adjusted annually, based on changes in annual income and family size.
Income-contingent repayment is only available from the U.S. Department of Education. Private banks and lenders that offered loans through the Federal Family Educational Loan Program (FFELP) provide Income-Sensitive Repayment; however, if you have one or more FFELP loans, the Department of education will allow you to consolidate your loan(s) into a federal direct consolidation loan so you can participate in the ICR program.
NOTE: The maximum repayment period is 25 years. After 25 years, any remaining debt will be discharged (forgiven). Under current law, the amount of debt discharged is treated as taxable income, so you will have to pay income taxes 25 years from now on the amount discharged that year. How can I participate in the ICR program?
Forbearance and Deferment
What is forbearance?
Forbearance is a temporary postponement or reduction of payments for a period of time because you are experiencing financial difficulty. You can receive a forbearance if you’re ineligible for a deferment.
How do I know if I qualify?
Visit the following Web site to find out if you qualify for a forbearance: http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/postponeloanpayment.htm
What is a deferment?
A deferment is a period of time during which no payments are required.
How do I know if I qualify?
Visit the following Web site to find out if you qualify for a deferment: http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/postponeloanpayment.htm
How do I initiate either a forbearance or a deferment?
Contact your lender to initiate either a forbearance or a deferment.
Forbearance/Hardship Process for Perkins Loans
Maintain contact with your lender
Lenders are accustomed to talking with college graduates who can't pay their loan right away. Call your lender(s), explain and they'll work with you. What to do if you're being harassed by your lender or by a collection company:
If you are receiving threatening treatment from a debt collector or lender, you can file a complaint with...
- The Federal Trade Commission
- Your State's Attorney General
The following Web sites provide a wealth of information about debt management. Much of the information on our site was derived from the following sources: