| WASHINGTON, Sept 21
WASHINGTON, Sept 21 It's a tough time to be a
former student. The lousy job market is bad enough, but two in
three recent graduates are carrying education loans averaging
$24,000. Graduates from high-priced schools may have double or
triple that amount of debt, and not any more luck finding
Defaults are up, the Department of Education just reported.
But in most cases, simply not paying isn't a real option; it's
easier to walk away from a house than from a student loan.
If you stop making payments on a federal student loan,
Uncle Sam will hunt you down and haunt you forever. Really. You
can hide for 45 years and then find your Social-Security check
clipped to repay your student loans.
But that doesn't mean you have no recourse. There are a few
moves you can make now to lighten your load.
Here's a quick guide to your options:
-- Learn about your lenders. It's important to know the
difference between government loans, which may be serviced by a
private company like Sallie Mae, and private loans, which may
have been issued by a company like Sallie Mae. The bills might
look the same, but the loans are very different in terms of the
available repayment options and the way borrowers are treated
when they fail to repay. Step one: Make a list of all of your
loans by lender.
-- Tackle your federal loans first. Federal student loans
really never do go away, so make those payments a priority. If
you're already in default, do whatever it takes to get your
loan rehabilitated and back to current, counsels Deanne Loonin,
a student loan expert with the nonprofit National Consumer Law
Center. That's because federal loans that are paid up to date
are eligible for some remedial programs, including loan
consolidation and income-based repayment.
-- Sign up for income-based repayment. There is a
relatively new and underutilized government program that allows
low-earners and no-earners to squeeze their payments down to an
affordable level. "It's assurance that your loan payments won't
put you in the poorhouse," said Lauren Asher, president of the
Institute for College Access & Success, an advocacy
organization. "You still have to pay them back but it is
Under some circumstances, the government will even pay the
interest on your loans for up to three years. If you spend your
whole career in a public service or low-paying job, you may
even get loan forgiveness after 10 or 25 years. The rules are
complex; you can find out details and whether or not you are
eligible at IBRinfo.org. (www.ibrinfo.org).
-- You can defer your federal loans. If you are unemployed,
in the military, in graduate school or suffering other economic
hardship, you may be able to get a complete deferral of your
loan for up to three years. But don't do this unless you have
to, because in many cases your interest will continue to
accrue. That means you will owe even more when you finally face
the music. It's a decent stop-gap strategy if you're jobless,
though. Or if you're doing something with your life that will
increase your earnings potential down the road.
-- You can consolidate your student loans. The Department
of Education allows you to roll your various federal loans into
one. This can be good if you're having trouble making payments,
because it may enable you to stretch your repayment period out
over a much longer time period -- as long as 25 years. But the
interest rate on your new loan is unlikely to be lower than
your existing loans, so it may not save you money in the long
term. You can calculate the best deal for yourself among the
various government loan programs with the excellent
consolidation calculator at the Department of Education's
-- You can cry about your private loans. "These are the
worst kind of loans," says Asher. Private loans are not
dischargeable during bankruptcy; they may not have any formal
forbearance programs at all, and it's up to the individual bank
to decide if they want to help you reduce your loan size or
rate. At mega lender Sallie Mae, troubled borrowers can usually
switch to different payment plans, temporarily, that will
reduce their monthly payments but not the size of their debt or
their interest rate, says Patricia Christel, a company
spokesperson. Sallie Mae will defer loans for grad students,
but then you end up owing that much more when you're done.
-- Consider the consequences of default. Fewer people are
actually walking away from private loans than they were a
couple of years ago, says Christel. But some borrowers are.
When you default on a private student loan, it will get
reported to the credit monitoring agencies and will show up on
your credit scores. A bad mark like that typically remains for
seven years, and in some cases even longer, say experts at
FICO, the premier credit scoring company and CreditKarma, a
credit scoring research site. The further into the past the
default recedes, the less impact it will have on your score, so
it may not ruin your ability to borrow money forever. But it
will hurt, and if the lender decides to chase you via
collectors or a lawsuit instead of writing off your loan, that
could stretch out far into the future.
-- Call in the feds. If you think there is some reason why
your loans aren't completely kosher, like they were foist upon
you by a questionable school or lender or you didn't understand
them, you can complain to the new Consumer Finance Protection
Bureau. That agency does have some regulatory authority over
student lending, and is looking at that space.
"We will be on the lookout for problems in the student loan
market," says Raj Date, a senior official at the new agency.
"If problems in this market warrant action, we will not
hesitate to use the tools that Congress has given us."
It's not clear that the agency can or will offer
individualized relief. But at least you may help the next
student in line.
(The Personal Finance column appears weekly. Linda Stern
can be reached at linda.stern(at)thomsonreuters.com)
(Editing by Gunna Dickson)