STUDENT LOANS: CANT LIVE WITH THEM, CANT EAT WITHOUT THEM
Student loans are necessary for most of us who want to obtain higher education. This is not a debt, but an investment. Even your car note, while important, pays for something that loses value over time. Your education loans pay for something that never decreases in value, and benefits your entire community. Also, unskilled work that existed a generation ago (factory work, some service jobs, most farming, etc) have been phased out, sent over seas, or routed to prisons for a cheaper labor source. Today, most available jobs require at least a bachelors degree. Scholarships, Grants, Work Study, Internships and Loans all make up a package to cover your life and expenses while you are obtaining your degree(s). Like my mother always told us, "Your education is something no one can take away from you."
WHATS YOUR TYPE?
Whenever possible, try to make sure your student loans are federally guaranteed. Some federal loan programs are: Perkins, Direct Unsubsidized, Direct Subsidized and PLUS (taken by the parent). Federal loans have more relaxed application criteria, lower fixed interest rates, a possible tax deduction on the interest, and a wide variety of repayment options.
There are also private student loans issued by banks and credit unions. However, the bank loans are private loans which may be harder to qualify for. They often require a credit check and may be harder to defer should you run into financial difficulty after graduation. The interest rates are usually higher and/or variable. Also, because they are considered unsecured debt, there is no tax deduction available for the interest paid on these loans.
WHEN THINGS GO WRONG, AS THEY SOMETIMES WILL
If you are actually unable to make your student loan payments, you can apply for a deferment or forbearance. A deferment is when you stop making loan payment and interest does not accrue. You may be able to apply for a deferment if you've returned to school, you're unemployed or under extreme financial hardship. Deferment may also be available if you work in a certain industry or field after graduation, or if you are serving in the military.
A forbearance is available if you don't qualify for a deferment, but you need to stop payments temporarily, make smaller payments, or extend the loan payments over a longer period of time. Interest accrues during a forbearance. Contact your loan servicer and financial aid office to get more information on these programs.
LETS PUT IT ALL TOGETHER: CONSOLIDATION
If you have multiple federally guaranteed student loans, you may be able to apply for a consolidation. Consolidation is when you sign a new single loan to pay off multiple student loans. This program is not needs based, but it may make your payments smaller, and more convenient. The loan will take longer to pay off because, obviously, its larger than any of the individual loans. Also, loans that are not federally guaranteed cannot be included in a consolidation.
YES ITS OVER: CANCELLATION
In some cases, your student loan can be cancelled or forgiven. If you work in certain teaching or public service fields, your student loan may be partially or fully forgiven. Also, if your school closed or defrauded you to obtain loan funds in your name, your loan may be forgiven. In cases of full disability, bankruptcy or your death, your loans can be forgiven.
I WANT YOU BACK
Why you should repay your student loans:
Avoid garnishee and credit issues - Private student loan companies can sue borrowers in small claims court to retrieve a student loan that has gone into default status. However, default on a federal loan can cause garnishee of your paycheck, tax return, and other assets if no payment arrangement has been made. Either type of loan, if unpaid, can show up on your credit report as a slow pay or default.
Make every effort to contact your loan servicer at the first sign of financial difficulty and make arrangement for a deferment, forbearance or other alternative payment plan. Its may be uncomfortable or embarrassing, but a lot less so than a small claims court appearance.
Keep your options open - You may want to return to school or apply to a graduate, or post graduate program in the future. If you are in default with a past student loan, you may be prevented from applying for additional funding.
Keep options open for future students - In this time of recession and government cut-backs, statistics are being gathered to determine which programs work and which don't. Current policy decisions about the student loan programs are made based on the repayment history of past loan recipients. Some programs are being cut or phased out for current students. Do your part to make sure the student loan program is available for future students. Pay yours back.
Let's Be Careful Out There!
