Getting Rid of Student Loans

Tuesday, February 9th, 2010 at 8:48 am  
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Did you know that taking out a Federal Student Loan is just as real as taking out an auto loan or a home loan? Because it’s backed by the Federal Government, they won’t let you declare bankruptcy to get rid of it, nor will they let you off the hook because you lost your job, or you didn’t get the education you expected either. In fact, getting rid of a student loan, short of paying it off, is pretty difficult.

Although your credit history was not taken into account when you received federal student loans, your credit history will be affected if you do not repay your federal student loans under the repayment plan you agreed to when you entered repayment.

Assuming you have some Federal Student Loans that you are having a hard time repaying, let’s look at what your options are for getting rid of student loans.

What Do I Do If I Can’t Make My Student Loan Payments?
Your student loan debt is a legal obligation and can be a 10- to 30-year financial commitment. This type of debt won’t go away by ignoring it. You need to contact your lender or servicer immediately to get help and discuss what your options are. There are many ways to get help, including changing your payment due date, repayment options, deferment or forbearance.

What Happens If I Miss A Student Loan Payment?
If you start to miss payments or you don’t make them on time, as of your first missed or late payment, your student loan will be considered delinquent and you can be assessed late fees. After 270 days of making no payments, your loan will go into default and your credit score will plummet. This can affect you well into the future since derogatory credit remains on your credit report for 7 years. You may no longer qualify for any future student loans that you may need and you may not be able to rent an apartment, buy a car or own a home.

What Is A Student Loan Deferment?
If you meet certain requirements, you may be able to qualify for a student loan deferment. This is a period in which repayment of the principal balance is temporarily postponed to a later date. If the loan is subsidized, the government pays the interest charged during the deferment. You are responsible for the interest that accrues during the deferment period for all unsubsidized loans, including PLUS loans. At the end of the deferment period when you resume making payments, your principal balance will increase by any unpaid interest that has accrued. Now, if you do not meet the requirements for a deferment, you may still be eligible for forbearance.

How Does A Student Loan Forbearance Work?
Under certain circumstances such as a financial hardship or illness, where you are unable to make your scheduled loan payments for a limited time or specific time frame, you may be able to get a student loan forbearance. This will allow you to postpone or reduce your monthly payment amount. You’ll go about requesting a forbearance directly from your current lender or servicer.

For all loan types, you will be responsible for all the interest that accrues during the forbearance period.
That unpaid interest will be tacked onto your principal balance as soon as you resume making payments once the forbearance period is over. If you are serving in an AmeriCorps position for which you are receiving an education award, or if you are serving in a medical or dental internship or residency program and meet certain other requirements, your lender is required to grant you forbearance.

Federal Student Consolidation Loans
You can consolidate several Federal Student Loans into one loan to help make the loan payments more manageable with a federal consolidation loan. There are several types of federal consolidation loans to choose from which offer loan repayments from ten to thirty years, depending upon the amount of your debt. The interest rate is a fixed rate for the life of the loan for both Direct and FFEL Consolidation Loans. The fixed rate is based on the weighted average of the interest rates on all of the loans you consolidate, rounded up to the nearest one-eighth of 1 percent. However, the interest rate will never exceed 8.25 percent.

What Is The Downside To Consolidating Student Loans?
There are some instances where consolidating student loans may not be the best choice for you, even though it may help you lower your overall monthly payments. Certain benefits may be lost (such as cancellation benefits, interest subsidies, etc.) that were offered on the loans being consolidated. Extending your payments or consolidating your loans may not be in your best interest if you are close to having those loans paid off. If you lengthen the term of your loan, interest will continue to accrue during this time, which increases the total amount of repayment.

Student Loan Forgiveness
Some schools may forgive a portion of your student loans if you perform certain types of service such as teaching in a low-income school. This program must be set up in advance, and not be relied upon say if you get a job as a teacher then default on your loan. If you’re an employee of state or local government, you may qualify for loan repayment in return for working in a job that is in great demand. Make sure you check into these options by asking about them at your school or job.

Student Loan Discharge
A student loan discharge means your student loan will be canceled and will no longer require repayment by you. You will qualify for your student loan to be discharged for these reasons, even if you’re currently in default:

• If the school you attend closes before you can complete your program, you are not responsible for your student loans, and do not need to repay them. The loans are canceled in full, and your credit report is not harmed by this.
• False Certification – If you can prove that the school misled you into thinking that you would benefit from their program and the loans or debt you took out was a result of such promises; under certain guidelines, you loans can be discharged.
• Your death
• Total and permanent disability

Student Loan Bankruptcy
In most cases, a loan, whether in default or not, cannot be discharged in bankruptcy. However, you can request a special “hardship hearing” where you present your case to a special judge, explaining why repaying the loans would be an undue hardship. Only a very small percentage of people successfully discharge their loans, so it would be wise to consult a bankruptcy attorney for more information on this option.

Helpful Tips To Pay Off Those Student Loans

• Whenever possible, buy use books instead of new ones.
• Activities sponsored by your school are free and can save you money versus going out.
• If you don’t stay within your free minutes on your cell phone plan, these costs can add up. Make sure to know what your plan is, and stay within the allotted minutes.
• Eating out can be very costly. If you have a prepaid meal plan at school, use it instead.
• Let’s face it, Starbucks is expensive. Get yourself a coffee pot and some flavored creamer.
• Use coupons when you shop and try to stick with a plan of buying just what you need and not what you want on impulse.
• Don’t get more than one credit card and make sure you only use it for emergencies. These charges and monthly payments can add up very fast and get overwhelming in a very short period of time. If you do charge, only charge what you can pay-off every month.

Sub Prime Loan Modification

Friday, December 18th, 2009 at 2:12 pm  
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Sub-prime lending is a type of credit given to homeowners who do not meet the criteria for regular (“prime”) loans. A typical sub-prime borrower has a poor or limited credit history and a FICO score of less than 620. These factors make them a risky investment for regular lenders, which keeps them from taking out loans. To compensate for the risk, sub-prime lenders impose higher costs on their contracts. For credit cards, this is usually a higher fee for over-the-limit spending or late fees. Sub-prime mortgages usually have higher interest rates and stricter terms.

 

Contrary to popular belief, sub-prime lending is a perfectly legal business. But like many new industries, it has been tainted by lenders who don’t play by industry standards. From 2003 to 2007, shady companies have turned up offering terms ranging from unfair to downright illegal. This, along with the economic slowdown, has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.

 

Are all sub-prime loans bad?

 

No. There are actually some sub-prime companies who give you good value for your money. If you find a good lender and stay current, sub-prime lending can have its benefits.For example, many people use sub-prime loans as a means of credit repair. Basically, it gives you a chance to rebuild your credit history and improve your scores. By keeping up a good record on sub-prime loans, you can eventually refinance to better terms and get back on your feet.

 

How do I know when a loan is sub-prime?

 

The first thing you should look at is the cost of the loan. Sub-prime loans have a higher overall cost (including interest, origination and closing fees) compared to prime loans. Although the basic formula is the same for both types, the pricing for sub-prime loans is more noticeably risk-based. A low credit score, small down payment, and other negative factors can greatly increase the cost of a sub-prime loan.

 

Another common feature is the prepayment penalty. Prepayment is when you pay more than the minimum monthly amount, or pay off the loan ahead of schedule. The penalty is to make up for lost interest on the lender’s part. Because you’re getting off early, the lender stops earning regular interest—and naturally, they charge you for it.

 

Many sub-prime mortgages follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches to an adjustable rate where your payments are determined by market indicators. Often, the introductory rate is higher than the current index and the margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with a margin set at 6%. Assuming the index stays the same; your rate can jump to 10% when your two years is over.

 

What can I do if I’m in a sub-prime loan?

 

Fortunately, there are laws in place to protect borrowers in any loan, prime or sub-prime. For instance, the Real Estate Settlement Procedures Act (RESPA) requires all lenders to give you a good faith estimate of the total cost of the loan before closing any deals. This prevents any third party, such as mortgage brokers, from making any kickbacks at your expense.

 

All mortgages are also covered by the Truth in Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any credit transaction, including credit cards. The TILA allows you to opt out of a transaction within a reasonable time if you don’t agree with some of the terms.

 

If a sub-prime mortgage has put you in financial difficulty, another thing you can do is apply for Loan Modification or in this case Sub Prime Loan Modification refers to an agreement between you and your lender to change the terms of your loan on account of your financial situation. This way you can modify your loan terms to a more affordable level. The Sub Prime Mortgage Loan Modification is a lengthy and time consuming process. However a competent loan modification attorney can expertly handle your case and expedite the loan modification process. A loan modification attorney will expertly present your case and use the above mentioned lending laws as leverage to get you more reasonable rates. If you’re already in foreclosure, this will also stop the process while you work out better terms with your lender.



By: Loan Modification Attorney

What Happens When You Default – Student Loans

Wednesday, November 25th, 2009 at 2:13 pm  
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You can be considered in default of your student loans after one or two missed payments. Even if you make partial payments your account can go into a default status. This is not a bill that you can ignore without serious repercussions. You may think that you are just racking up a few late fees, but you could not be more wrong.

You will be charged late fees, of course, but what you may not realize is that these late fees can amount to more than you originally borrowed. There is no cap on how high your late fees can go. Collection efforts also come with a charge. The Department of Education has to hire a collection agency to do their dirty work and you get charged for it.

Your interest rate can jump up astronomically every month that you do not pay. This can also quickly raise your balance to way more than you ever thought possible. The Department of Education has the power to get their money by any means possible. Therefore, this huge number on paper will eventually come out of your pocket.

The IRS can send any refunds due to you directly to the student loan manager. This is usually their first line of defense when it comes to getting their money. They usually go to the IRS after ninety days of no payments, so it does not take long. Instead of getting your refund, you may get a letter stating that it has been sent to your student loan lender instead. If this amount does not cover the amount that you owe, then the next step is taken.

Your wages can be garnished and the amount you owe will start coming out of your paycheck. This can be devastating for most families and if you thought you were having trouble paying your bills before, try having your paycheck taken.

If that is still not enough, then they can sue you for the money that you owe. If you receive any kind of federal benefits, then they can intercept those as well. The bottom line is that you can not get away with not paying your student loans off.

If you are in default, call your loan manager and figure out the best steps to take. There are options like deferment, forbearance, and loan cancellation. Sometimes bankruptcy can dismiss student loans, but not always. The best thing to do is to lay out all of your options and come up with a solution. Some loans have income based payments that are adjustable depending on how much money you make. There are options out there for you, but you do have to ask. Paying off your student loans can be within your reach if you try.

By: Evelyn A. Saunders