So, you’ve defaulted on your loans. Now what?
Let’s start off with the basics; most of what we’ve talked about so far has been advice on how not to default on loans. But inevitably, some of you will default. So, what do you do when that happens? Let’s start at the beginning.
1. What does it mean to default on a loan?
Defaulting just means that you have gone 270 days (9 months) without making any loan payments.
2. What happens when you default?
Well, for starters, it takes some of the more appealing repayment options off the table. That includes the ability to apply for deferment, forbearance, and in most cases, refinancing as well. It also means that the government can seize any and all of your tax returns, and that your credit score will fall dramatically.
3. How do you fix it?
Digging yourself out of default isn’t easy. But it is possible. Beginning on July 1, the government instituted a new program that allows borrowers to emerge from default on their federal student loans through 9 consecutive loan payments over the course of 10 months. These payments come out to 15% of a family’s adjusted gross income. The calculator with the algorithm can be found here: www.asa.org/repay/calculators/rehab/default.aspx
While the program is designed to make payments “reasonable and affordable” many participants are still complaining that they find the prices to be the opposite. This is still a very new program, and it obviously has some kinks that still need to be worked out, but it seems like a promising idea for people who have defaulted on their student loans and find themselves in serious financial trouble.
Read more here: http://www.columbian.com/news/2014/jul/25/new-plan-on-student-loans-helps-repayment/
The High Stress Life of a 27 Year Old!
Check out this fantastic infographic!
So, what is “Debt Consolidation” anyway?
Hello, and welcome to another installment of, “What does all of this financial stuff mean?”.
Today we’re going to discuss the root of what we’re all about: debt consolidation. So, what does it mean to consolidate your debt? Should you do it? Let’s take a look.
The Basics: Consolidating debt is simply the act of lumping all of your debt together into one monthly payment. Of course, the balance of this combined loan would have to equal the sum of each individual loan. Consolidating your loans, therefore, does not mean that the big, scary number that you owe will change, but when they are all combined into one loan, the interest rates will be lower. The difference between consolidating student loans and regular loans, however, is that with student loans, it is incredibly difficult to extricate yourself by declaring bankruptcy, so the government can garnish your wages if you cannot keep up with the payments.
Like all things, you should carefully consider your options when deciding whether to consolidate your student loan debt, but in the long run, it can remove a lot of unnecessary stress from your monthly repayments.
A new bill proposition to ease the tension of student loans
A new bill was proposed to the senate today in another attempt to pass legislation that will help to ease the burden of student debt. This bipartisan bill, called the Dynamic Repayment Act includes clauses regarding debt forgiveness as well as a pay-as-you-earn plan.
Though there are existing pay-as-you-earn programs available to borrowers, they have complicated and confusing applications and a ton of red tape in general. With the existing programs, all debt is forgiven after 20 years. This new proposal would standardize the pay-as-you-earn model, unless borrowers want to set up their own payment schedules. From there, in an attempt to appeal to both parties, the bill also says that all debts below $57,500 would be forgiven after 20 years, and any more than that would be forgiven after 30 years. It seems almost too good to be true, which leaves people skeptical as to whether it is.
Chapter 2. Student Loan Buzzwords: What do they actually mean?
Forbearance & Deferment
For today’s discussion of “tricky terms that may get you into trouble” we’re going to take a look at forbearances on loans, and examine the extent to which they are actually a good decision.
So what do they do? A forbearance, which is different from a deferment, allows borrowers to TEMPORARILY reduce or stop payments on student loans. They key word here is temporarily. It seems like it might be a quick out for when the loan payments become particularly tedious and you just need a breather to get back on your feet. But is it actually a good idea?
As will seem to be the answer to most of the questions here, yes and no.
With respect to federal loans, if you find yourself in a rut that you know is going to turn around soon (ie. you’re unemployed but have an offer for future employment that may not start right away) then a forbearance may be a good decision.
At the same time however, you must recognize that a forbearance is by no means a freeze. Interest will still add up, and at some point, you will still be expected to make the payments you would have made during your forbearance period.This is one of the biggest differences between a deferment and a forbearance; in a deferment, the government takes care of the payments during your deferment period, BUT this only applies to the SUBSIDIZED STAFFORD LOANS.
There are some differences in qualifications for deferments and forbearances as well. There are very specific criteria for each, so if you are considering taking either one of these options, it would be good to check in with your loan officer.
For more advice, check out this article: http://www.usnews.com/education/blogs/student-loan-ranger/2014/07/09/4-questions-to-ask-before-requesting-a-student-loan-forbearance
How student loans can come to take over your life.
As has become so evident in sensationalist media, when you take out student loans, you run the risk of not being able to repay them. But how true is that, actually? How likely is it that you will actually enter a totally hopeless situation by trying to better yourself with a college education?
There are a few alarming pieces of statistical evidence that seem to back up the claims with which the media seems to inundate us. This information may not be hugely useful to those who already have loans, but for those still trying to determine whether or not to take loans, here are some more things to consider.
1. Many employers are looking to candidates with masters and professional degrees and above. This seems to imply that the bachelors degrees that many of these loans have paid for are slowly but surely losing their value.
2. Some schools without particularly extensive endowments recognize the benefits in accepting students who are capable of paying larger proportions of the tuition. They will give a $10000 per year grant to draw in a student who they know can pay the remaining $40000 per year, rather than using this money to help students who really need the aid.
3. Where 10 years is typically considered a reasonable amount of time to take to repay loans, many people are spending 20-25 years paying off their college educations.
4. There is no direct consequence on universities when borrowers default on their loans. Creating some sort of tie would encourage schools to think twice before raising the cost of attendance and promoting students to take out loans in the first place.
Read more here: http://www.businessweek.com/articles/2012-09-06/student-loans-debt-for-life#p3
Chapter 1. Student Loan Buzzwords: What do they actually mean?
Tons of different words get thrown around when talking about the struggle to repay student loans. There are options. But what do these things all mean?
Today we’re going to talk about refinancing.
Refinancing loans is simply replacing your existing loans with other ones that offer better rates. Often, this means using private institutions to refinance your federal loans. Sometimes, refinancing can be a great option, but like most things, if it seems too good to be true, it often is. One important thing to remember is that where federal loans are terminated upon death, most private loans are not. Yes, this is morbid. No, of course you don’t want to consider the possibility that you’ll be unable to pay off your loans before you die. But the truth is, it’s a real thing that happens, and it’s just another thing you’ll want to remember when weighing your options regarding what to do with your loans.
To elevate the condition of the people
A really interesting take on the role student loans play in oppressing the American people.
Putting the Student Loan Crisis into Perspective
Reports from earlier this year suggest that the student loan crisis is not quite as volatile as some sensationalist media would have you believe. More specifically, the so-called “bubble” that increasing student debt has formed is only approximately 10% the volume of the mortgage bubble that causes the economic collapse in 2007/2008. While on a larger scale, we can breathe more easily knowing that our abundance of student loan debt is unlikely to throw us into another recession, we cannot forget the economic implications the student loan bubble has on a more individual basis. That is to say, just because the conglomeration of loans will not crash the entire economy, that does not mean that there are no other large-scale implications. With less pocket money and savings, people with loans cannot contribute to the economy through retail, luxury purchases and travel. Fewer people are buying cars and homes and going on vacation. The high levels of student loan debt hurts individual industries, which may not crash the economy, but they will certainly stunt its growth.
Read more here: http://www.forbes.com/sites/johntharvey/2014/04/28/student-loan-debt-crisis/
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