May 18, 2017

Transitions: Student Loan Lowdown



With no federally subsidized college tuition in America, low-interest federal loans have always been second best. But now you’re graduating, and the government will want its money back.

When to pay back a loan
After you graduate, you have a period of time before you have to begin repayment on your student loans. This “grace period” will be six months for a Federal (FFEL) or Direct Stafford Loan and nine months for Federal Perkins Loans. Before you graduate, you should receive information about repayment, and your loan provider will notify you of the date your loan repayment begins.

It can’t be emphasized enough the importance of making your full loan payment on time either monthly (which is usually when you’ll pay) or according to your repayment schedule. If you don’t, you could end up in default, which has serious consequences.

Student loans are real loans-just like car loans or mortgages–and they have to be paid back on time. You do have a choice of repayment plans if you received a FFEL or a Direct Loan. But Federal Perkins Loans don’t have repayment plan choices; you generally have up to 10 years to repay. Your monthly payment will depend on the size of your debt and the length of your repayment period. If you don’t repay your student loans on time or according to the terms of your promissory note, you might go into default, which will affect your credit rating. There is assistance for borrowers having difficulty repaying their education loans, including deferment and forbearance.

Defaulting on your loan
If you default, it means you failed to make payments on your student loan according to the terms of your promissory note (the binding legal document you signed at the time you took out your loan). In other words, you failed to make your loan payments as scheduled. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government can all take action to recover the money you owe. Here are some consequences of default:
  • National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
  • You would be ineligible for additional federal student aid if you decided to return to school.
  • Loan payments can be deducted from your paycheck.
  • State and federal income tax refunds can be withheld and applied toward the amount you owe.
  • You will have to pay late fees and collection costs on top of what you already owe.
  • You can be sued.

If you’re worried you might miss a payment, call and talk to your loan servicer about different options. In some cases, for example, you might be able to consolidate your loans or reduce your interest rate if you sign up for electronic debiting. Just know that you should never have to pay to talk to someone about repayment options.

Loan Consolidation
A Consolidation Loan allows you to combine all the federal student loans you received to finance your college education into a single loan. There are many companies and organizations who will offer you the opportunity to consolidate your loans. Consolidating can be very beneficial-it typically offers one payment to make and the possibility of a lower interest rate. You can only consolidate once for the length of the loan.

Cancellation and deferment options for teachers
Do you want to teach? If you’re a teacher serving in a low-income or subject-matter shortage area, it may be possible for you to cancel or defer your student loans. Something to think about. Get more information at studentaid.ed.gov

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